By Roberto Landucci and Barry Moody

ROME (Reuters) - Lawyers for Silvio Berlusconi asked the supreme court on Wednesday to throw out a tax fraud conviction against the former prime minister in a case that could decide not only his future but that of Italy's fragile coalition government.

The Court of Cassation heard more than three hours of arguments from Berlusconi's two lawyers challenging the verdict of a lower appeals court which sentenced him to jail and a ban from public office for the fraudulent purchase of broadcasting rights by his Mediaset television empire.

The court then adjourned until Thursday when a court official said the five judges would begin considering their decision at noon (1000 GMT/6 a.m. ET). The court can confirm the sentence, overturn it or send the case back to the appeals court for a retrial because of legal errors.

If the court confirms the sentence, there could be political turmoil in the midst of Italy's worst postwar recession.

The weak coalition government of Prime Minister Enrico Letta's center-left Democratic Party (PD) and Berlusconi's center-right People of Freedom (PDL) could be plunged into crisis, with potential fallout across the euro zone.

Berlusconi's chief lawyer, Franco Coppi, told the supreme court judges that the lower court had ignored defense arguments that Berlusconi was not directly involved in Mediaset's business dealings after he entered politics in 1994.

He said in any case the court had wrongly framed the charges, which were not fraud but an accounting offence subject to fines rather than a penal sentence.

On Tuesday, the public prosecutor asked the court to reject Berlusconi's final appeal against a four-year jail sentence commuted to one year under an amnesty. But he said a ban from public office for the four-time prime minister should be reduced from five years to three.

The 76-year-old media tycoon says he has been persecuted by leftist judges ever since he entered politics in 1994, but if he loses the supreme court case it will be his first definitive conviction in at least two dozen trials.

Because of his age, the jail sentence would be served through community service or house arrest. Followers say he would still run his party, which he founded and bankrolls and which has no clear alternative leader.

POWER CURTAILED

But the power and campaigning skills which have enabled him to dominate Italian politics for 20 years, since the so-called Bribesville graft investigation wiped out the old political order, would be severely curtailed.

There is speculation that Berlusconi's oldest daughter, Marina, 46 and chairwoman of his Fininvest holding company, would become the PDL's public figurehead if he is convicted.

Berlusconi's most hawkish supporters have threatened a mass desertion of the government and parliament and blocking of Italy's motorways with public demonstrations if he is convicted.

But a greater threat to the government could come from Letta's party, which is torn by a leadership struggle. Many of the party's members are already deeply uneasy about being in coalition with Berlusconi and could rebel if he is found guilty.

Politicians from all sides are waiting anxiously for the verdict, with uncertainty over Berlusconi's fate adding to inertia which has prevented Letta's fractious government from passing urgently needed economic reforms.

"The eve of the supreme court decision is accompanied by a strange silence. It is as if suddenly politics is holding its breath in anticipation of the sentence on Silvio Berlusconi," said respected political commentator Massimo Franco.

Berlusconi has repeatedly said he will not bring down the government even if convicted, but has raised doubts about whether the PD would remain loyal.

However, the former cruise ship crooner is a mercurial figure and his reaction to a guilty verdict is unpredictable.

Even if Berlusconi is convicted definitively, it could take his peers in the Senate until at least September to vote for his ejection from parliament.

The supreme court decision is not Berlusconi's only legal headache. He is also appealing in a lower court against a seven-year jail sentence in June for abuse of office and paying for sex with Moroccan-born nightclub dancer Karima El Mahroug, alias "Ruby the Heartstealer", when she was underage.

(Writing by Barry Moody; Editing by Mike Collett-White and Sonya Hepinstall)