By Geoffrey Smith

Investing.com -- Italian stocks and bonds made tentative gains on Wednesday as Mario Draghi indicated he will carry on as Prime Minister after all.

In a speech to the Senate, Draghi said he was willing to put together a new coalition, still holding out for a change of heart by the 5 Stars Movement (M5S), which refused to support him in a vote of confidence last week over differences in economic policy.

"The only way if we want to stay together is to rebuild this (government) pact, with courage and altruism," Draghi said, pointing to the broad support for the government among the population at large, and among Italy's cash-strapped local authorities.

"It is an undeserved support, but I am extremely grateful for it," Draghi said.

However, the relief was mixed with caution, as Draghi still appeared to make his own presence as Prime Minister dependent on a change of heart from M5S.

"Are you ready to rebuild the government pact?" he asked the assembled Senators. "You don't owe the answer to me, but to the country."

The benchmark FTSE MIB stock index, which had opened lower ahead of the speech, initially rose as much as 1% on the day before giving up most of its gains to trade back at 21,669 points by 03:30 AM ET (0730 GMT). The yield on the 10-Year Italian government bond - which moves inversely to prices - reacted more positively: it fell to 3.29% from 3.44% before Draghi's speech.

Italy's financial markets have placed enormous trust in Draghi's ability to unlock hundreds of billions of euros in support from the EU's post-pandemic reconstruction fund. Without that money, and with the cost of servicing its 2.25 trillion-euro debt pile rising as the European Central Bank starts to raise interest rates, markets are more jittery than ever about him leaving the stage to a parliament dominated by populists of both left and right wings, which have been more antagonistic toward the EU in the past.

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