By James Mackenzie
ROME (Reuters) - Italy's president warned on Wednesday against delaying next year's elections after wrangling over the 2013 budget threatened to put of the dissolution of parliament, which had been expected this week.
The budget, which must be passed before new elections can be called, had been expected to pass by Friday but has been held up Silvio Berlusconi's center-right People of Freedom (PDL) party demanded more time to consider the bill.
"Avoiding an extension of this kind of institutional uncertainty is in the interests of the country," Giorgio Napolitano, the president, said in a statement, adding that he hoped that "the electoral campaign is not prolonged excessively."
The delay to the budget bill caused Prime Minister Mario Monti to postpone his end-of-year news conference at which he had been expected to announce whether he intends to stand as a candidate.
A source close to Monti said he would not make any comment on his future until parliament had been dissolved, which is now not likely until at least next week.
The election, originally due in April, was brought forward after Berlusconi's party withdrew parliamentary support for Monti, prompting the former European commissioner to announce he would resign as soon as the budget was passed.
No election date had been announced but, before the latest delay, it had been widely expected in mid-February.
The leader of the PDL in the lower house of parliament, Fabrizio Cicchito said his party believed the best date for an election would be February 24 or March 3.
The leader of the center-left Democratic Party, which is leading in opinion polls, called the delay to the budget law's approval "indecent and unacceptable".
"You cannot make legislation like the budget law subject to party agendas," Pier Luigi Bersani said.
The PDL has been trailing badly in the opinion polls but it has seen a three point rise in the latest survey since Berlusconi announced he would run. It hopes that his proven campaigning skills will reverse its months-long decline.
Financial markets shrugged off the uncertainty, with the main measure of investor confidence, the spread between Italian and German 10-year bond yields, dropping below 300 points to reach the levels seen before Monti announced his resignation.
Monti, appointed a year ago to lead a technocrat government at the height of a debt crisis that threatened the entire euro zone, is widely seen outside Italy as the best guarantor of financial stability.
He has so far declined to respond publicly to pressure from Italy and abroad for him to seek a second term but he has done nothing to dampen the growing speculation that he will throw his hat into the ring.
Without citing any sources, Italian newspapers said on Wednesday that Monti was ready to back a new centrist grouping set up by Ferrari Chairman Luca Cordero di Montezemolo, which wants him to remain in office.
It was not clear whether he would run as its candidate for prime minister or take a more back-seat role by publicly endorsing a party or setting out a recommended policy program.
"Monti has taken his decision but he is respecting the rules and will wait for the dissolution of parliament," Pierferdinando Casini, head of the UDC party which is part of the centrist alliance, told reporters.
Although Monti is the favorite of the business elite and Italy's European partners, his image among ordinary Italians is much less favorable and according to a survey this week, 61 percent do not think he should stand in the election.
He enjoys wide respect for restoring Italy's international credibility after the scandal-plagued Berlusconi era, but many blame the mix of tax hikes and spending cuts he has imposed to rein in public finances for deepening the country's recession.
The same poll, by the SWG polling institute, put support for a centrist coalition including Montezemolo's group at 9.3 percent, although that figure would rise to 15.1 percent if Monti were to lead the alliance.
The center-left Democratic Party, which has supported Monti in parliament, has been openly skeptical about the idea of a candidacy by the unelected premier, which it says risks tarnishing his authority.
(Additional reporting by Giselda Vagnoni and Catherine Hornby and Francesco Guarascio in Brussels. Editing by Jeremy Gaunt.)