ROME (AFP) - Italy's new Prime Minister Enrico Letta was set to unveil his coalition government's programme on Monday, under the watchful gaze of international markets and European partners.

The recession-hit country, which had been left effectively without a government for over two months by an inconclusive election in February, is under pressure to act fast to tackle social, economic and institutional ills.

Mr Letta, who is expected to address parliament at 1300 GMT (9pm Singapore time), has said he wants to move quickly to deal with the social fallout of the longest slump in 20 years by tackling unemployment figures at close to 12 percent - and higher among the young - and moving away from austerity imposed by his predecessor Mario Monti.

The European policy on austerity, he said last week, "is no longer enough."

Political observers will also be looking for key measures aimed at pulling the eurozone's third-largest economy out of a slump which has driven thousands of businesses into bankruptcy.

Mr Letta has promised to renew confidence in the country's scandal-hit and feuding political institutions, but will be pushed hard to please all players.

The party bickering which followed the centre-left's failure to win a majority fuelled a growing social unease captured in the anti-establishment Five Star Movement's spectacular rise to win one-fourth of the February vote.

Epitomising the climate of tension, an unemployed man suffering from depression after failing to find work shot two policemen Sunday outside government headquarters as the new cabinet was being sworn in a kilometre away.

The markets were expected to react favourably to the new government, after ratings agency Moody's warned Friday of an "elevated risk" that a continued political stalemate would harm investor confidence in the debt-laden country.

New Economy Minister Fabrizio Saccomanni, formerly the director general of the Bank of Italy, said Sunday he would launch a pact with banks, businesses and consumers to boost growth and tackle the country's two-trillion-euro (S$3.2-trillion) debt.

Italy's debt will rise to 130.4 percent of gross domestic product this year, while the economy will shrink 1.3 percent, according to official forecasts.

"The Letta government will be judged on its capability to respond to the emergency in the job sector and slow the hemorrhaging which is bleeding out Italy's manufacturing system," said Italy's Sole 24 Ore daily, which added that in the 61 days since the vote, 3,000 industrial firms have closed.

Mr Letta's success will also rely on ensuring the continued support of the political parties - and he faces the first challenge on Monday from billionaire media magnate Silvio Berlusconi's centre-right People of Freedom party (PDL).

Mr Berlusconi made the abolition and refund of a controversial housing tax imposed by Monti a key concession in exchange for his party's support - a move which would set the budget back some eight billion euros.

Mr Renato Brunetta, PDL leader in the lower house, told Il Messaggero daily on Sunday that if the tax deal is not included in Mr Letta's programme, the party will withdraw its backing.

Mr Letta will also have to work to keep his own centre-left Democratic Party (PD) from imploding, after a rebellion last week which badly fractured the party.

The government will go to a confidence vote in both houses of parliament either Monday or Tuesday.

Analysts say the coalition is likely to last long enough to push through key reforms - including a revision of the complex electoral law which created the deadlock - but may be brought down by sparring parties within a year or two.

Mr Berlusconi - who critics say managed to install his protege Angelino Alfano in the post of deputy prime minister in order to have the reins of power in his grip - may pull support once he believes he could win a fresh bout of elections.

The three-time premier, who is on trial on charges of paying for sex with a 17-year-old prostitute, was widely written off politically after his government was brought down in 2011, but has shot up again in the popularity polls.