Reuters International

FILE PHOTO: Five-Star Movement leader and comedian Beppe Grillo gestures during a rally in Turin, Italy February 16, 2013. REUTERS/Giorgio Perottino/File Photo

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By Steve Scherer

ROME (Reuters) - Italy's anti-establishment 5-Star Movement suffered a resounding defeat in local elections, results released on Monday showed, even though national polls say it is the country's most popular party.

Five-Star candidates came in third or fourth in Parma, Verona, Palermo, L'Aquila, Catanzaro, Lecce, Taranto and Genoa, birthplace of the movement's founder, comic Beppe Grillo.

National elections are due in Italy by the first half of next year and could be held as early as this autumn, meaning Sunday's vote in 1,000 towns and cities was an important test of political strength.

Newspaper headlines and pundits pounced on the results, saying the 5-Star might have peaked, but Grillo shot back on Monday, confidently predicting his group would bounce back.

"Everyone is gloating, putting forward rarefied analysis on the death of the 5-Star and the return of a bipolar (political) system," Grillo wrote on his blog.

"Convince yourself this is true so you can sleep more soundly. We will continue forward on our path."

The party had hoped to build on last year's election successes, when it took control of 19 large towns and cities, including Rome. But its rule in the capital has been mired in controversy, and its grassroots operations elsewhere have been snarled by internal feuding.

Despite its local difficulties, the most recent opinion polls taken ahead of Sunday's vote say the 5-Star would win more than 30 percent in a national race, just ahead of the ruling Democratic Party (PD) led by former prime minister Matteo Renzi.

Silvio Berlusconi's Forza Italia and the far-right Northern League - long-time allies but with increasingly diverging political agendas - trail with less than 15 percent each.

The centre-right fared strongly on Sunday where Forza Italia and the League put aside their divisions and ran together, taking the lead in 13 of the 24 main municipal races. A run-off ballot between the two leading candidates is due on June 25.

The only outright winner in a major city on Sunday was Leoluca Orlando, who led the centre-left to victory in the Sicilian capital Palermo, securing his fifth mandate.

An anti-mafia firebrand, Orlando has governed the city for 16 of the past 32 years.

Most of the 5-Star candidates would have been new to government. Last year the 5-Star cast its victory in Rome, the nation's capital, as proof it was ready to govern.

But Mayor Virginia Raggi has been dogged by legal scandals since taking office, and she has appeared slow to revive a city hobbled by years of corruption and economic decline.

Until last week, Italy's main parties had been trying to pass a new proportional electoral law together, but the deal unravelled.

Last week, markets appeared wary of more political instability in Italy, which has the euro zone's highest public debt after Greece and has been underperforming, fearing an autumn election could interfere with the presentation of a belt-tightening 2018 budget.

(Additional reporting by Crispian Balmer. Graphic and Editing by Jeremy Gaunt.)

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