Initial count in Italy shows Berlusconi ahead in the Senate.

By Barry Moody and James Mackenzie

Feb 25 (Reuters) - Rome - Projections from the initial vote count in Italy's election on Monday (local time) showed Silvio Berlusconi's center-right slightly ahead in the Senate, a result that could cause deep instability in the government if confirmed.

The projections on television channels RAI, Sky, Mediaset and LA 7 were the opposite of previous predictions from telephone polls that showed the center-left would assume a strong lead in both houses of Parliament.

The change in projections had an immediate impact on the markets, which rose earlier in the hope of a strong and stable government led by the center-left.

This government, likely supported by the outgoing technocratic Prime Minister Mario Monti, is seen as the best guarantee of measures to combat a deep recession and stagnant growth.

Berlusconi's goal is to gain enough power in the Senate to paralyze a center-left-led government.

Initial telephone polls on Sky and Rai channels, after voting ended at 11:00 AM (Brasilia time), showed that Pier Luigi Bersani's center-left was 5 to 6 points ahead of the center-right in the Senate and the Chamber of Deputies, with the anti-government movement of Genoese comedian Beppe Grillo in third place.

But initial projections on the RAI channel, based on a small sample of the electorate of 47 million, showed Berlusconi's coalition, which includes the federalist Northern League, ahead of Bersani in the Senate by just over 2 percentage points. The projections still placed Grillo in third place.

Italian electoral laws guarantee a strong majority in the Chamber of Deputies to the party or coalition that wins the most national votes.

But in the Senate, elected on a region-by-region basis, it's more complicated, and the result is determined in four important regions. Projections by LA 7 showed Berlusconi winning in three of them: Lombardy, Sicily, and Campania.

RAI's projection showed Berlusconi strongly ahead in the wealthy Lombardy region, with 31,6 percent against 29,4 percent for the center-left, with Grillo at 24,9 percent.

Italy, the third largest economy in the eurozone, is fundamental to the stability of the monetary union.

A bitter campaign, fought mainly on economic issues, was closely watched by financial markets, worried about the risk of a return to the kind of debt crisis that brought the eurozone close to disaster and led to the technocrat Monti taking office, replacing Berlusconi, in 2011.

Monti helped save Italy from a debt crisis when Rome's borrowing costs spiraled out of control, but polls and projections suggest that few Italians now see him as the country's savior in its deepest recession in 20 years.