By Giselda Vagnoni and Silvia Aloisi

ROME (Reuters) - The Italian government is confident it can reach a compromise with Brussels and avoid sanctions over its deteriorating public finances, the economy minister said as talk of a looming government crisis grew.

The European Commission wrote to Italy last week asking it to explain why its public debt rose in 2018 instead of falling as required, a move that set the stage for a possible legal clash with the ruling eurosceptic coalition in Rome.

In his response to Brussels, Economy Minister Giovanni Tria blamed an economic downturn for the rising debt and vowed to respect the EU's fiscal rules in the next budget.

But a report in La Repubblica daily on Sunday said the EU Commission had found Tria's letter too vague and non-committal, and was likely to take the first steps toward a disciplinary procedure this week.

Speaking to Reuters on the sidelines of a ceremony at the presidential palace in Rome on Saturday night, Tria said he believed the government could still avert such punitive measures.

"Italy does not want to clash with the European Commission, and I hope the opposite is also true, that is to say that no one in Brussels intends to engage in a fight with us," he said.

"Our position is reasonable and I think we will eventually reach a compromise with the Commission," he added.

He also reiterated a pledge that the 2019 budget deficit would come in below a government forecast of 2.4% of gross domestic product - a level the Commission deems too high.

Tria is a former academic with no affiliation to either of the two ruling parties governing Italy - the right-wing League and the anti-establishment 5-Star Movement, which are both backing tax cuts that would likely inflate the deficit.

The League's anti-EU rhetoric in particular has gone up a notch after its victory in European parliamentary elections, with its chief Matteo Salvini insisting that Rome should cut taxes to boost growth, rather than abide by "obsolete" EU fiscal rules that could choke the economy.

The League won 34.3% of the vote in last week's European elections, trouncing its coalition partner and fuelling speculation it might ditch 5-Star and seek a fresh national election at the head of a bloc of smaller conservative parties.

DISCIPLINARY PROCESS

La Repubblica said the start of an EU disciplinary procedure against Italy this week was "almost inevitable" unless the government could come up with a convincing set of commitments to keep its rising debt and deficit in check.

The EU Commission declined to comment on Sunday, saying it would publish its views on Italy's public finances on Wednesday.