By Roberto Landucci
ROME (Reuters) - Italian lawmakers on Tuesday pulled back from a showdown over the political future of Silvio Berlusconi after allies of the billionaire media tycoon threatened to bring down Prime Minister Enrico Letta's unstable ruling coalition.
A meeting of a cross-party Senate committee charged with deciding whether Berlusconi should be barred from the Senate following a conviction for tax fraud ended without holding a vote, easing political tensions at least for the time being.
The center-left Democratic Party (PD), which has the largest presence on the 23-member committee, accepted center-right demands to slow down hearings on the case, but it maintains its position that Berlusconi must lose his seat.
The meeting ended at around midnight (6 p.m. ET). Hearings will resume on Thursday at 9 a.m. ET, Senator Benedetto Della Vedova of Mario Monti's Civic Choice said.
"The discussion will start again in the next few days and it will take a long time," the Senate group of the anti-establishment 5-Star Movement, which is most hostile to Berlusconi, said in a tweet as the meeting neared its end.
After a tense day in which center-right leaders threatened to pull out of Letta's coalition, potentially triggering snap elections, a sign of reduced hostilities came when Berlusconi called off a meeting with his lawmakers scheduled for Wednesday.
Many observers had expected that meeting to sanction the end of the Letta government if the center-left had maintained the uncompromising stance it had shown at an initial committee meeting on Monday.
Berlusconi's center-right People of Freedom (PDL) party has sought to halt the hearings pending an appeal to the European Court of Human Rights but has been rebuffed by the center-left which says the appeal is no more than a delaying tactic.
Whether the PDL's repeated threats to bring down the government go beyond simple brinkmanship remains unclear but the wrangling around the hearings has underlined how entwined Italy's political stability remains with the personal fate of Berlusconi, 20 years after he first entered politics.
At Tuesday's meeting the center-right agreed to drop a series of technical objections to try to halt the hearings on the agreement that each of the committee members could speak at greater length in a broad discussion on the merits of the case.
Ahead of Tuesday's hearing arguments had raged between the main partners in the cross-party coalition led by Letta, who comes from the PD, with each side accusing the other of creating a crisis.
With Italy straining to contain its 2 trillion euro public debt, the Berlusconi imbroglio has also hobbled efforts to reform the euro zone's third-largest economy, causing worries that extend well beyond its own borders.
Berlusconi, convicted by Italy's top court last month of being at the center of a vast tax fraud conspiracy at his Mediaset television empire, could not be expelled without a full vote on the floor of the upper house.
But he in any case faces banishment from front-line politics for at least a year after the court sentenced him to a four-year jail term that was then commuted to one year under house arrest or in community service.
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Whether a government crisis would necessarily lead to new elections is unclear, given President Giorgio Napolitano's reluctance to send Italy back to the polls.
If the PDL eventually makes good on its threats, Napolitano could try to oversee the creation of a new government formed around the PD with the support of dissidents from the center-right or 5-Star party.
Berlusconi's own party remains divided between hawks pressing for a showdown with the PD and more moderate elements and executives from his business empire who fear that the party risks isolating itself with no guaranteed payoff.
With the European Central Bank pledging to step in to prevent bond market turmoil of the kind which threatened Italy at the height of the euro zone debt crisis in 2011, financial markets have shown no signs of panic.
But Italy's borrowing costs have crept up over the past few weeks and an auction of mid-term bonds on Thursday will be closely watched for any signs of investor nerves.
On Tuesday, Spanish government bond yields fell below Italy's for the first time in 18 months as worries over the political standoff hit sentiment.
Although there have been faint signs of improvement after some two years of recession, data on Tuesday showed the economy still far from recovery.
(Additional reporting by Paolo Biondi, James Mackenzie and Gavin Jones; Writing by James Mackenzie and Gavn Jones Editing by Ralph Boulton and Eric Walsh)