'New possibilities' for coalition government

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But while Conte will nominally hold the most powerful office in Italy, the driving forces in his administration will be the leaders of the two political parties that gained the most votes in an inconclusive election in March: the right-wing League party and the anti-establishment Five Star Movement.

The Italian president reappointed law professor Giuseppe Conte as Prime Minister-designate on Thursday in order to lead a coalition government.

The new government is expected to face votes of confidence in the two houses of parliament on Monday and Tuesday.

Italy's two populist parties have reached a new agreement to form a government, days after a standoff with Italy's president over the parties' stance on the euro abruptly ended their first bid to assume power.

Mattarella then turned to Cottarelli to form a neutral government of technocrats to lead Italy until early elections.

Italian President Sergio Mattarella asked Conte to form a new government on Thursday evening.

A joint statement by the anti-establishment Five Star Movement (M5S) and the far-right League had announced that political newcomer Giuseppe Conte, who had been seen as a controversial choice, would serve as prime minister. Both parties have criticised the European Union but deny having a plan to leave the euro.

The Five Star Movement and the far-right League revived their alliance after agreeing to substitute the eurosceptic professor, Paolo Savona, as the economy minister.

"We are going to work hard to fulfil all of the political goals included in our government contract", the Prime Minister-appointed said in a short speech after the meeting.

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"We are radically something other than the majority that supports the government", Renzi tweeted.

Financial markets bounced back Friday after a rollercoaster ride.

Mattarella rejected Conte's original choice for economy minister but a different candidate was agreed on Thursday.

The Italian President has previously described his role as that of a "political referee".

The 53-year-old was sworn in along with his cabinet, which will place M5S leader Luigi Di Maio and League chief Matteo Salvini in key ministerial posts.

Conte has left policy specifics to the drivers of his improbable rise, with 5-Star leader Luigi Di Maio reporting for work after the parade to the ministry of economic development, which would have otherwise been closed for the holiday.

"We're ready to reconsider our position in the sense that if we made a mistake - something I doubt - we'll say so, but now we should respect the will of the people", news agency AP quoted him as saying. "And the most extreme case of that, of course, is the United Kingdom and the decision to leave the European Union altogether", Walker said.

After months of uncertainty in the eurozone's third-biggest economy, Italy's blue-chip share index was up more than 2%, as banks recovered from a rout and government bond yields moved sharply lower in early trade.

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