Italy's president raced to appoint an emergency government on Sunday to face a crisis endangering the whole euro zone after Prime Minister Silvio Berlusconi resigned to the jeers of thousands of protesters.

Just a few hours after central Rome echoed with street parties celebrating Berlusconi's departure, President Giorgio Napolitano began a rapid round of meetings with political parties at his hilltop palace to find a new prime minister and government.

The consultations, faster than is normal, are due to wind up at about 1700 GMT, when Napolitano is expected to ask former European Commissioner Mario Monti to form a government largely of technocrats in time for the opening of markets on Monday.

If he manages to secure sufficient backing in parliament, Monti will push through reforms agreed by Berlusconi with euro zone leaders to cut Italy's massive debt and revive a chronically stagnant economy.

See what a beautiful day it is? he said to reporters as he left his hotel on a crisp, clear day to go to church and then to his Senate office to work on forming the government.

However there are clear signs that he will face problems, with Angelino Alfano, secretary of Berlusconi's PDL party saying there was huge opposition among its members to a Monti government, despite a conditional offer of support from its leadership.

Italy's political turmoil, centred around the flamboyant and scandal-plagued figure of Berlusconi, has brought the euro zone's third largest economy to the brink of disaster and all eyes will be on market reaction on Monday.

German Chancellor Angela Merkel welcomed signs of an end to the weeks of uncertainty, saying the approval of a reform package in parliament on Saturday was heartening.

I hope that confidence in Italy is restored, which is crucial for a return to calm throughout the euro zone, she said ahead of a party conference in Leipzig.

CHEERS AND CHAMPAGNE

Sunday newspapers said Berlusconi's departure marked the end of an era and spoke of the irony of how a media magnate famed for his skills in communicating with the public was seen off by jeering crowds.

Turin's La Stampa called it a sad exit from the stage, noting how he was forced to leave the presidential palace secretly via a side exit on Saturday night after handing in his resignation because a crowd shouting insults including clown, clown made it dangerous for him to exit by the front gate.

Cheers erupted when they heard he had resigned. People sang, danced, broke open bottles of champagne, and an impromptu orchestra near the palace played the Hallelujah chorus from Handel's Messiah.

Some protesters threw coins at Berlusconi's car in a gesture reminiscent of the departure into exile of disgraced Socialist Prime Minister Bettino Craxi in 1993, often seen as his political mentor.

Berlusconi, one of Italy's richest men, has dominated the country since bursting onto the political scene the following year, filling the vacuum on the right created by a massive corruption scandal that swept away the old order.

Opposition newspapers hailed Liberation Day but the pro-Berlusconi daily Libero warned Italians to watch your wallets because a Monti government would impose a host of new taxes.

Following weeks of political uncertainty and growing calls from international partners for action to control its debt, Italy's borrowing costs soared to unmanageable levels last week, threatening a Europe-wide financial meltdown.

BROAD BACKING, SOME CONDITIONAL

Monti has received the backing of the main opposition groups and is expected to be backed by at least part of the PDL.

However Alfano warned the party would not agree to any attempt by Monti's government to change Italy's widely criticised electoral law, a reform demanded by opposition parties.

We have huge opposition even to the idea of supporting a Monti government from the outside, he told state television.

Analysts also believe Monti will face strong opposition to some of the tough austerity measures he will need to implement to satisfy markets and euro zone leaders.

Outgoing Interior Minister Roberto Maroni, a senior figure in the devolutionist Northern League, confirmed that the party opposed the expected technocrat government.

The decisions which Monti will take must pass in parliament and I think that with such a heterogeneous majority he will have many problems. I believe this solution will lead to many problems, Maroni said in a television interview.

The League adamantly opposes pension reform that would hit older voters who are among its key supporters.

The next elections are not due until 2013 but there are widespread predictions Monti will not last until then but make way for polls once he passes reforms promised to Europe.

Italy came close to a full scale financial emergency last week after yields on 10-year bonds soared over 7.6 percent, levels which forced Ireland, Portugal and Greece to seek an international bailout.

With a public debt of more than 120 percent of gross domestic product and more than a decade of anaemic economic growth behind it, Italy is at the heart of the euro zone debt crisis and would be too big for the bloc to bail out.

Financial markets have responded positively to the prospect of a Monti government and as Berlusconi's departure became more likely last week, yields dropped below the critical 7 percent level.

(Additional reporting by Alexandra Hudson in Berlin Editing by Barry Moody and Andrew Heavens)