Italy's ruling parties talk up elections as Conte struggles for majority

* PM Conte lacks a solid majority in Senate

* PD and 5-Star both flag possibility of elections

* Political crisis comes amid COVID-19 pandemic, recession

* Markets sell off Italian bonds on election risk

* Ruling parties rule out broad-based coalition with right

By Gavin Jones

ROME, Jan 22 (Reuters) - Italy's main ruling parties on Friday flagged snap elections as the only way out of its political impasse, if Prime Minister Giuseppe Conte fails to drum up a parliamentary majority after scraping through a confidence vote.

After surviving Tuesday's Senate vote thanks to abstentions, Conte appealed to centrist and unaligned upper house lawmakers outside the coalition to join his minority government's ranks.

Few have responded and time is short, as Conte seeks a solid majority to push through urgent legislation to tackle one of Europe's worst coronavirus epidemics and the deep economic crisis it has triggered.

The deadlock and its uncertain resolution has unnerved financial markets. The risk premium on Italian debt - the gap between its and Germany's 10-year bond yields - rose on Friday to its highest since November.

"We don't fear an election and we believe it can be one of the ways out of this situation," cabinet undersecretary Andrea Martella, of the centre-left Democratic Party (PD), said in an interview with RAI state television on Friday.

PD deputy leader Andrea Orlando delivered a similar message on a Thursday evening talk show when asked if elections were becoming likely: "Unfortunately they are, we believe that if Conte falls this majority will implode," he replied.

The PD's coalition partner, the anti-establishment 5-Star Movement, also said on Friday that if Conte failed to quickly get the necessary parliamentary backing a snap election was the only option.

That would probably be won by the right-wing opposition led by Matteo Salvini's League party, opinion polls suggest.

The crisis was triggered last week when former premier Matteo Renzi withdrew his centrist Italia Viva party from the coalition, depriving it of an outright Senate majority.

Analysts say the stance taken by the PD and 5-Star is partly a way of pressuring wavering senators to join the government, as most parliamentarians want to avoid a vote two years ahead of schedule in which many would risk not being re-elected.

The situation looks increasingly difficult.

Underscoring internal PD tensions, four of its senators on Friday told its leaders to stop threatening elections "directly or indirectly."

The PD and 5-Star both rule out supporting a broad coalition with rightist parties, while 5-Star rules out backing any government not led by Conte, who does not belong to any political party. Both currently rule out a reconciliation with Renzi. (Additional reporting by Angelo Amante, Giuseppe Fonte and Valentina Consiglio; editing by John Stonestreet)