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By Philip Pullella
ROME (Reuters) - A combative Prime Minister Silvio Berlusconi vowed on Thursday to govern with "even more grit" after Italy's top court lifted his immunity and he dismissed corruption charges against him as "laughable."
But commentators warned that tension stemming from the Constitutional Court ruling on Wednesday could destabilise the political landscape and spill over into the economy.
"The government will forge ahead calmly, tranquilly and with even more grit than before because this will be absolutely indispensable for freedom and democracy in this country," Berlusconi said in a morning radio interview.
In a major blow for the 73-year-old president, the court ruled that a law granting him immunity from prosecution while he is in office violates the constitution. The verdict will reopen two trials against him that were suspended.
Berlusconi also has been hit by a spate of scandals surrounding his private life, including allegations a businessman paid women to sleep with him. His wife announced in May she wanted a divorce because of his womanising.
Berlusconi has responded by attacking Italy's president, the media, magistrates and the constitutional court as leftists scheming against him.
"The two trials against me are false, laughable, absurd, and I will show this to Italians by going on television and I will defend myself in the courtroom and make my accusers look ridiculous and show everyone what stuff they are made of and what stuff I am made of," he said.
Bank of Italy Governor Mario Draghi tried to play down economists' concerns, saying "recent political events won't have any consequence on the economic scene."
But analysts say the verdict is bound to weaken Berlusconi and make tough economic policy decisions less likely as the third largest economy in the euro zone struggles to recover from its deepest recession since World War Two.
"Berlusconi is very clearly coming to the end of his line as a political leader ... (This court ruling) is certainly not the end but it is another nail in the coffin," said James Walston, political science professor at the American University of Rome.
"What has been happening already over the last few months is that the centre-right are beginning to look for who is going to take over," he added.
One sign of how precarious Berlusconi's support could become was a warning from Gianfranco Fini, lower house speaker and the second most important centre-right leader, that the premier must "respect the Constitutional Court and the head of state."
Fini, the leading candidate to succeed Berlusconi, has been a frequent critic of Berlusconi's outbursts.
"NERVES OF STEEL"
While there seems little short-term risk of early elections, mostly because the opposition is in a state of disarray since its defeat last year, commentators expressed deep concern.
"This could have destabilising effects on politics and the legislature," said an editorial in business daily Il Sole 24 Ore. "Who would be interested in going down to this precipice?"
Berlusconi's personal attack on President Giorgio Napolitano sparked what commentators said could turn into a dangerous clash between the two highest office holders in the land.
After former communist Napolitano rejected the charge that he was biased, Berlusconi snapped: "I don't care what the head of state says, I feel they are making a fool out of me."
It appeared likely the polarisation could worsen. Maurizio Gasparri, Senate leader of Berlusconi's coalition, said a big demonstration to support the premier was being planned.
The immunity law, one of Berlusconi's first acts after winning last year's election, halted all the cases against him, including one in which he is accused of bribing British lawyer David Mills to give false testimony to protect his businesses.
Two other cases, one accusing him of tax fraud and false accounting in the purchase of TV rights by Mediaset and another alleging he tried to corrupt opposition senators, have also been frozen. Berlusconi denies any wrongdoing.
Shares in Mediaset were down around 0.3 percent, among the few losers on the Milan market, which was up 0.8 percent.
"The news (of the ruling) is negative because it creates a political risk for Mediaset, even though there should be no risks of changes to regulation in the TV sector," Milan broker Equita said in a note.
Shares in his publishing company Mondadori were up 1.4 percent. Asset manager Mediolanum, in which his Fininvest holding company has a key stake, was up 0.8 percent.