Italian politicians were scrambling to find a replacement for departing prime minister Silvio Berlusconi and head off the risk that the country could become the next and biggest euro zone casualty.

President Giorgio Napolitano had tried in vain to calm markets Wednesday after Italy's borrowing costs reached levels that could close its access to market funding, a development which would threaten the future of the euro zone.

Napolitano gave assurances that the controversial Berlusconi would honour his pledge to step down after parliament approved reforms geared to placate markets. He would then waste no time in either appointing a new government or calling new elections, he said.

It may already be too late to turn the markets around as the borrowing costs of the euro zone's third biggest economy have risen for days to run past levels which forced Ireland and Greece to seek bailouts.

What matters most to investors is not who replaces Berlusconi or the next government's commitment to reforms, but whether euro zone policy-makers will finally put in place a credible and durable backstop to Italian debt, said Nicholas Spriro, head of debt consultancy Spiro Sovereign Strategy.

Napolitano appointed former European Commissioner Mario Monti as a senator for life, a move which many Italian commentators interpreted as a sign he would ask Monti to try to form a government of technocrats as soon as Berlusconi goes.

Italy's main business and banking associations called for a government of national unity, with broad, cross-party support.

Monti, a respected economist, has long been cited as the most likely leader of this kind of unelected executive, which has been tried with success in Italy in the past and would aim to pass the vital, market-friendly reforms.

Lower House Speaker Gianfranco Fini said that parliament would pass the reforms by Sunday aimed at boosting growth and shoring up public finances in a so-called maxi amendment to the 2012 budget currently before parliament.

Those reforms, which Berlusconi promised to Italy's increasingly worried partners last month, will be the government's last piece of business before the prime minister tenders his resignation.

The secretary of Berlusconi's People of Freedom party, Angelino Alfano, said on television Wednesday night that Berlusconi would resign between Saturday and Monday.

Despite being the subject of intense political haggling for weeks, the details of the maxi-amendment remain sketchy.

Economy Minister Giulio Tremonti denied Wednesday that the package would include steps to ease firing restrictions, a move which would be welcomed by markets but would be fiercely contested by trade unions and the leftist opposition.

Measures that will feature will aim to open up the professions, reduce bureaucracy and sell off public real estate, government officials have said.

The European Commission has called on Italy to adopt more steps to ensure that its promise to balanced its budget by 2013 will be achieved.

(Editing by Jon Hemming)