UPDATE 2-Italy's Salvini puts rail link row on ice until Monday

Italy's coalition will not open new discussions over a fiercely contested high-speed rail link with France before Monday, Deputy Prime Minister Matteo Salvini said, giving the divided ruling parties time to let tempers cool. The Alpine rail line is backed by Salvini's League party but is strongly opposed by its coalition partner, the 5-Star Movement, which argues Italy's share of the funding would be better spent upgrading existing roads and bridges.

"We'll talk about it again on Monday," Salvini told reporters in parliament, adding that a meeting among coalition leaders on the issue which had been expected later on Friday would not take place. The long-running dispute suddenly escalated late on Thursday and raised the risk of a government collapse, with 5-Star leader Luigi Di Maio accusing Salvini of acting irresponsibly and putting the coalition's future at risk.

Salvini reiterated in a breakfast-time radio interview on Friday that the League would "never" vote in parliament to block the project, as 5-Star wants. Pushing back the discussion until Monday leaves open the vexed question of what to do about a deadline that day regarding the tenders that must be opened or blocked to carry out key parts of the construction work.

Some League politicians proposed on Friday that the tenders could be launched on schedule but with a clause that they could be revoked depending on the outcome of the coalition dispute. This suggestion has so far been rejected by 5-Star. Markets have shrugged off the mounting coalition tensions.

Italian 10-year bond yields were heading on Friday for the biggest weekly drop since September, and the spread over German Bunds hovered around 245 basis points, compared with a recent high of around 280 on Feb 22. The TAV project (Treno Alta Velocita) is a joint venture between the Italian and French states to link the cities of Turin and Lyon with a 58-km (36-mile) tunnel through the Alps on which work has already begun.

The European Union has pledged to fund up to 40 percent of costs, Italy up to 35 percent and France up to 25 percent. Italian Prime Minister Giuseppe Conte said on Thursday he had strong personal doubts about the validity of the venture and he would take responsibility for a final decision based on a cost-benefit analysis already carried out by the government.

That analysis, commissioned by Transport Minister Danilo Toninelli, a 5-Star politician, found the TAV was a waste of public money, estimating the economic return would be a negative balance of at least 7 billion euros ($7.9 billion). Conte, who is not a member of either ruling party but is closer to 5-Star, called the funding of the TAV "iniquitous" and said he would speak to France and the EU "to share our doubts and perplexities."

His words were applauded by Di Maio but Salvini responded that he was ready to "go all the way" in backing the TAV, which the League says will create jobs, help the economy and reduce road haulage pollution. ($1 = 0.8923 euros) (Additional reporting by Giselda Vagnoni and Stefano Bernabei; writing by Gavin Jones, Editing by Susan Fenton, Andrew Cawthorne, William Maclean)