ROME - Former Italian prime minister Silvio Berlusconi abandoned his bid to topple Enrico Letta's government in a humiliating climbdown after key allies rebelled against his leadership.
"We have decided to vote for confidence, not without internal disputes," Berlusconi said before a confidence vote in parliament on Wednesday, called after he ordered his ministers to leave the cabinet.
Berlusconi said he had changed tack after hearing Prime Minister Letta's promise to lower taxes and was mindful of the need for reforms after calling just hours before for early elections.
Letta, who had been tipped to squeak home minutes before Berlusconi's U-turn, ended up sweeping the vote with a crushing majority of 235 senators in favour and 70 against.
Letta shook his head as he listened to Berlusconi, who has dominated political life in Italy fo r much of the past two decades but has been on the decline. As the 77-year-old Berlusconi left the parliament building, 100 protesters shouted "Go away!", while Letta flashed a victory sign.
The surprise about-turn was cheered by the markets, with shares in Milan jumping 1.45 per cent although they later closed up 0.68 per cent.
The difference between rates on Italian 10-year government bonds and benchmark German ones - a measure of investor confidence - also narrowed to 253 basis points from 260 points on Tuesday.
European Commission President Jose Manuel Barroso hailed the Italian Senate's vote as "decisive" not just for Italy, but for the eurozone and European Union as a whole.