Italy Is Staging A Big Rally, With Just A Few Hours To Go Before Polls Close

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Polls close in the hotly contested national election in just under 6 hours.

The reason why the whole world is watching is that Italy is Europe's largest debt market, and a turn away from the current "reform" path would be seen as significantly destabilizing.

There are worries that strong performances today by either Silvio Berlusconi or Beppe Grillo (the anti-bank populist comedian) will create chaos.

We'll be covering the results LIVE all day.

In the meantime, Italy's FTSE MIB index is up nearly 1%, and yields on the country's borrowing costs are falling nicely.

Here's the stock market rally.

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Bersani Headed for Election Win Over Berlusconi, Poll Shows

Pier Luigi Bersani, the ex-communist who campaigned to maintain budget rigor, is on track to win Italy’s first election since Europe’s financial crisis broke out, according to a SkyTG24 Tecne poll.

Italian bonds and stocks rallied as the poll showed the populist campaigns of Beppe Grillo and Silvio Berlusconi fell short against the austerity advocates. Staying the course set by outgoing premier Mario Monti in the world’s third-biggest debtor is crucial to Europe’s effort to contain the turmoil that forced Berlusconi out of office in 2011.

“The market reaction tells us that there’s an enormous Berlusconi tail-risk relief rally,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “Once we’ve gotten over the, ‘Oh thank goodness Berlusconi hasn’t won or got a controlling majority in the Senate,’ then people will say, ‘Yes, and what are you going to actually deliver now?’”

Italian 10-year yields fell 25 basis points to 4.19 percent at 3:41 p.m. in Rome, the biggest rally in five months. The FTSE MIB stock index climbed 3.6 percent, led by financial shares such as UniCredit SpA .

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Italy election forecasts point to political gridlock

Conflicting early forecasts of the result of Italy's election on Monday raised the specter of deadlock in parliament that could paralyze a new government and re-ignite the euro zone crisis.

Officials from both centre and left warned that such gridlock could make Italy ungovernable and force new elections.

Opinion polls have long pointed to the center-left of Pier Luigi Bersani winning the lower house, but projections from RAI state television showed Silvio Berlusconi's center right in front in the Senate - which has equal lawmaking power - but unable to form a majority.

RAI showed the center-left well short of a majority in the Senate even in coalition with Monti, who was seen slumping to only 19 out of 315 elected Senators against a massive 65 for the anti-establishment 5-Star Movement of comedian Beppe Grillo.

Senate votes are counted before the lower house.

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