Italy Prime Minister Monti resignation expected on Friday

Italian Prime Minister Mario Monti will hand in his resignation to President Giorgio Napolitano after parliament approves the 2013 budget later on Friday, political and government sources said.

Monti this month lost the support of former Prime Minister Silvio Berlusconi's centre-right People of Freedom (PDL) party which had backed his technocrat government in parliament. But Monti had already announced he would stand down as soon as the budget was passed.

He is due to hold a news conference on Sunday at which he is expected to say whether he intends to stand as a candidate in the election, likely to be held on February 24.

The lower house is expected to give final approval to the budget at around 5 p.m. (1700 GMT), wrapping up its last piece of business before Napolitano dissolves parliament.

The cabinet is expected to meet at 7 p.m and Monti could hand in his resignation to Napolitano immediately afterwards.

Monti, appointed to lead an unelected government to save Italy from financial crisis a year ago, has kept his intentions a closely guarded secret.

He has been linked to a centrist alliance that has pledged to continue his reforms but he has yet to say whether he will campaign actively.

However he has dropped heavy hints that he will continue to push a reform agenda that has the backing of both Italy's business community and its European partners.

Ordinary Italians, weary of repeated tax hikes and spending cuts, appear less convinced and opinion polls show little sign that voters are ready to give Monti a second term, with a survey this week showing 61 percent saying he should not stand.

Whether or not he stands as a candidate, he is expected to overshadow an election which will be fought out over the painful measures he has introduced to try to rein in Italy's huge public debt and revive its stagnant economy.

The centre-left Democratic Party (PD) has held a strong lead in the polls for months but a centrist alliance led by Monti could gain enough support in the Senate to force the PD to seek a coalition deal which could help shape the economic agenda.

Berlusconi's return to the political front line has however added to the already considerable uncertainty surrounding the race and increased the likelihood of a messy and potentially bitter election campaign.