By Francesca Trianni and Roberto Landucci
NEW YORK/ROME (Reuters) - Italian Prime Minister Enrico Letta returns from a visit to New York on Friday to face the threat of a government collapse following renewed threats from Silvio Berlusconi's center-right party to pull out of his fragile coalition.
Letta will immediately meet President Giorgio Napolitano to discuss the crisis, which has loomed ever closer since Berlusconi was convicted of tax fraud last month and sentenced to four years in prison, commuted to a year under house arrest or in community service.
The sentence has prompted fury in the center-right and repeated threats to pull out of the unwieldy coalition with Letta's center-left Democratic Party (PD), formed after February's deadlocked parliamentary elections.
Late on Wednesday, lawmakers from Berlusconi's People of Freedom (PDL) party threatened to resign en masse if a special Senate committee meeting on October 4 voted to strip their leader of his seat in the upper house following his fraud conviction.
Speaking just hours before he was due to leave New York, where he has been courting foreign investors, Letta said the threat was "a humiliation, not of me personally, but of Italy".
He wanted the PDL to make it clear whether they supported his government or not, although he declined to say whether he would call a vote of confidence in parliament.
"I want this clarification to take place before the Italian people, who should be able to make up their own minds so that everyone assumes their responsibilities," he said.
With the government due to pass urgently needed deficit cutting measures on Friday, Letta said Italy required stability while it struggles to emerge from two years of recession and rein in its 2-trillion-euro ($2.7-trillion) public debt.
Earlier, Napolitano, who would have to decide whether to dissolve parliament or try to build a new coalition if the government fell, issued a sharp rebuke to Berlusconi's party allies, accusing them of undermining parliament.
He dismissed as "absurd" accusations by Berlusconi that the judges who tried him aimed at a "coup d'etat" and said he would not intervene against the fraud verdict.
As the latest bout of brinkmanship preoccupied Rome, rumors swirled that Italy faced a renewed downgrade of its government debt, sending the Milan bourse lower and pushing up borrowing costs on benchmark 10-year bonds.
Italy will auction up to 6 billion euros of medium and long-term bonds on Friday.
Whether the latest center-right threats amount to more than bluster is difficult to assess given a series of contradictory signals from Berlusconi's allies in parliament, who are divided between a faction of hardliners and more conciliatory doves.
Maurizio Gasparri, deputy floor leader in the Senate for the PDL, recently renamed "Forza Italia" (Go Italy!), said the decision to resign had been agreed.
But Constitutional Reform Minister Gaetano Quagliariello, a Forza Italia moderate, said the center-right had no joint commitment to stand down.
"We didn't vote for any resignation yesterday. If you're going to resign, you do it, you don't announce it," he said.
The crisis comes as the government grapples with problems ranging from strained public finances to the fate of big firms including Telecom Italia and national carrier Alitalia, both embroiled in complex takeovers.
"Unfortunately, this back and forth with threats weakens an equilibrium which is already very delicate," Luigi Zanda, Senate floor leader of the PD, told daily Corriere della Sera.
The constant tension within the coalition has hobbled reform efforts and wasted weeks in wrangling while other urgent issues, notably the slipping budget deficit, require attention.
The next battle could loom as early as Friday, when the cabinet is due to agree potentially painful measures to avert a looming rise in sales tax, another issue over which the center-right has threatened to bring the government down.
Letta must find around 1 billion euros to finance the tax hike while also trimming at least another two billion from the budget to bring the deficit under European Union limits.
Pressure on the coalition from Forza Italia rose hours after Letta sought to reassure international investors in New York that Italy was a stable and reliable partner.
($1 = 0.7403 euros)
(Additional reporting by Steve Scherer; Writing by James Mackenzie; Editing by Gavin Jones and Angus MacSwan)