Berlusconi refused to concede defeat after the closest Italian election in modern history, saying he hoped checks on disputed ballots would show he won the April 9-10 vote.

At one point he said the election had been rigged, but later rowed back on his comments.

After a week of checks across Italy, the supreme court said in a statement that Prodi won the election in the lower house by 24,755 votes. Provisional results last week said the winning margin was a slightly higher 25,224 votes.

Despite his tight victory, Prodi's coalition will have almost 70 more seats than the center-right in the 630-seat lower chamber, thanks to new rules introduced by Berlusconi last year. In the Senate, however, it will have a two-seat majority.

Under the Italian constitution, the head of state formally gives the election winner the mandate to govern.

But the transition process is complicated this year because President Carlo Azeglio Ciampi's term expires on May 18 and he wants his successor to nominate the new prime minister.

The new parliament, together with regional representatives, will pick a successor to Ciampi on May 12-13.

''Berlusconi's aim is to shorten the life of Prodi's government,'' said Maurizio Pessato, chief executive officer of polling company SWG Srl in Trieste, Italy. ''Berlusconi is playing a political game without thinking about the consequences for the country.''

Berlusconi lost control of the Chamber of Deputies by just 24,755 votes, a margin of less than 0.1 percent, and he's just two seats shy of a majority in the Senate. It was the closest ever Italian election. When Prodi, 66, does take office, he'll face the double challenge of reviving growth and keeping his nine-party coalition together.

Berlusconi, 69, has yet to respond to the final results. Finance Minister Giulio Tremonti, who is also deputy premier and a member of Berlusconi's Forza Italia party, said after the court announcement that there were still ''things that need to be clarified.''

Allies Waver

Still, some of Berlusconi's allies have acknowledged the defeat, putting pressure on Berlusconi to back down. The Christian Democrats, the third-biggest party in Berlusconi's coalition yesterday accepted to court's decision, while Gianfranco Fini's National Alliance said the party has ''taken into account'' the outcome of the recount.

The benchmark S&P/MIB index has fallen 1.2 percent since the April 10 vote, compared with an advance in the Dow Jones STOXX 50 index in the period. The difference in the yield, or risk premium, to buy Italy's benchmark 10-year government bond instead of a similar German bond widened to 32 basis points, the most in four years, from 29 before the vote. A basis point is 0.01 percent.

Berlusconi's intransigence coupled with Prodi's narrow majority may hamper the prime minister-elect's ability to form a government. The new parliament meets for the first time on April 28 to choose the parliamentary leaders and then a new president to replace Carlo Azeglio Ciampi. The new president is then expected to ask Prodi, as the winner of the vote, to try to form a government.

Defections

Any defections or even absences among Prodi's forces in the Senate, where he has a two-seat margin, could lead to a stalemate. Last night Mirko Tremaglia, minister for Italians abroad, said he had convinced one of Prodi's senators elected by voters living outside Italy to switch sides. Prodi's Union coalition denied the defection.

''Berlusconi is trying to delegitimize Prodi before he even takes office,'' said Massimo Bordignon, professor of public economics at Milan's Catholic University. ''Berlusconi is showing his muscles and promising to lead a difficult opposition in parliament.''

The threat of a parliamentary deadlock contributed to Berlusconi proposing that he and Prodi form a ''grand coalition'' to jointly govern a country he said was divided in two.

'Stalemate Situation'

''We are faced with a stalemate situation, one in which, at least on the basis of the popular vote, there are no winners or losers,'' Berlusconi wrote in a letter in Corriere della Sera, Italy's biggest newspaper, on April 15.

Prodi rejected the idea and he has urged Berlusconi to accept defeat.

''The election issue is finally resolved,'' Prodi said yesterday at a press conference in Rome. ''The Italians now have no doubt about our victory.''

Even if he can form a government, Prodi's narrow majority will hamper his bid to revitalize Europe's least-competitive economy by slashing payroll taxes in his first year. He's promised to cut 10 billion euros ($12 billion) from what companies and employees contribute to pensions and other welfare benefits.

''The risk is that we will see politicians spending more time negotiating than acting,'' said Massimo Lucco Borlera, chief investment officer at Sella Gestioni Sgr in Milan, which manages the equivalent of $4.1 billion.

Berlusconi's reasoning in not recognizing Prodi's victory is in part strategic, aimed at destabilizing his successor, and in part personal, said James Walston, chief professor of Italian politics at the American University in Rome.

''Berlusconi's a bad loser,'' Walston said.

Doctors at Model hospital in Kathmandu said two people had died and more than 40 were in serious condition, mostly with head injuries, after police fired rubber and live bullets at protesters.

Among the wounded, at least 10 were in critical condition, a doctor at the hospital said on condition of anonymity because of the sensitivity of the situation.

Thousands of people were marching in the Kalanki area on the western edge of Kathmandu when police first fired tear gas and then began shooting with rubber and live bullets, said Kunjan Aryal of INSEC-Nepal, a Kathmandu-based rights group.

"Our volunteers have already picked up two wounded people and there are reports of many more wounded waiting for rescue," said Aryal, whose office is in the same neighbourhood.

A reporter for Nepal FM, a private news station, said from the scene that many people were wounded.

An estimated 30,000 people had walked from surrounding villages and were marching toward Kathmandu on the Thankok road, the main route into the capital city. A line of armed policemen blocking the entry point fired tear gas, followed by rubber bullets and live ammunition, witnesses said.

There was no immediate comment on the shooting from government officials, who imposed a 2 a.m.-8 p.m. curfew on Thursday in an attempt to block plans for a mass protest by opposition political parties against King Gyanendra's rule.

"The Police have moved about 400 Chinese to a camp in the Police headquarters, and they are currently quite well protected," said Zhao.

The protests had erupted in Honiara, the capital, on Tuesday night, reportedly triggered by the election of Snyder Rini as prime minister by 50 lawmakers chosen at an April 5 parliamentary election.

Reports said dozens of Chinese-owned shops in the Chinatown in Honiara were looted.

There are over 400 Chinese living in Honiara, amongst whom, over 180 are Chinese nationals, including five Hong Kong people.

Zhao said, "there were injuries but no death" to the local Chinese following the two-day looting.

"We have called all the relative organizations, including the Australian and New Zealand forces stationed there to rein in the riot," said Zhao.

He said PNG Chinese Embassy is trying to send staff to Solomon Islands for further assistance to the Chinese there.

According to Radio New Zealand, a tense calm has settled Thursday over the Solomon Islands after 180 Australian soldiers and police arrived in the capital Honiara to quell violent protests.

A curfew was called across the city on Wednesday and police were given the power to arrest people on suspicion of inciting violence and hold them without charge for up to a week.

The device was found beside the Paris-Nantes line used by high-speed trains near the western village of Saint-Sylvain-d'Anjou by a railway worker making a regular inspection of the track.

The plastic tube containing nitrate fuel and wired to a timer with a battery appeared home-made, the state prosecutor's office said, adding that the bomb could have been placed there any time in the past 10 days.

Authorities said they had received no claim of responsibility or demand from the person or group that
placed the bomb.

If it had gone off, "it could have damaged the track and caused a derailment," an official in the prosecutor's office said.

Four men, aged between 22 and 46, were arrested under the Terrorism Act, three in the scrapyard near the Antrim Road in Lurgan, County Armagh. Officers spent most of the day searching the site, which was close to a railway line. Army bomb disposal experts were called in.

Police in riot gear later clashed with local youths hurling bricks and paint bombs. There were reports that petrol bombs had been thrown and masked men spotted in the area. There were also reports of fires being started near the yard where the components were found. No one was injured, although police vehicles were damaged. Railways services were halted during the disturbance.

It is thought the explosives were being prepared for a car bomb. The Police Service of Northern Ireland (PSNI) confirmed that "suspected bomb making materials" and "a quantity of fertiliser" - the main ingredient of home-made explosives - had been discovered.

Superintendent Alan Todd said he did not know what the target was, but expressed alarm that the bomb was being made so close to the Kilwilkee housing estate. "Material of that sort is by its nature unstable," he said. "The device was being constructed for immediate use. We believe it's linked to dissident republican organisations. It's a very worrying escalation, at a time when the community is trying to move forward, that there is still a small number of individuals intent on swimming against the tide of public opinion."

Residents at a private housing development metres from where the bomb components were seized were stunned that a device was being constructed so near to them.

Liam Thompson, 24, who lives in Belvedere Manor, described as one of Lurgan's most sought-after locations, said: "If it had gone off around there, God only knows what sort of damage it could have caused.

"It's especially frightening considering all the schoolchildren around here."

There have been a series of poorly coordinated attacks by dissident republicans in recent months. Most have been aimed at army barracks or police stations. The dissident groups, opposed to the peace process, have denounced the Provisional IRA's decision to dispose of its weapons.

Last week an attempt to damage Strand Road police station in Derry was blamed on dissidents. Armed men hijacked a van and ordered the driver to take the vehicle, which contained an incendiary device, to the station. He abandoned the van and raised the alarm.

Sinn Féin condemned those responsible for the Lurgan bomb. "These groups have little or no support within this community and they do not have a strategy to deliver Irish unity and independence," said local assembly member John O'Dowd. "The discovery of this device has ensured disruption and inconvenience for local people and has caused anger within the community."

Dolores Kelly, the Social Democratic and Labour party assembly member for Upper Bann, said: "The people of Lurgan are horrified that dissident republicans have been plotting and planning a major attack. Four men have been arrested while making what is believed to be a 200lb bomb in the middle of a built-up area.

"There is no doubt that these dissident republicans were intent on causing major trauma and damage. They were playing with the lives of the people of Lurgan by making such a sophisticated device in the heart of the community.

"The good people of the north of Ireland want to move away from the shadows of the conflict and dissident republicans must come on board and realise the days of guns and bombs are over."

The concerns raised by the Independent Monitoring Commission are shared by some officers at Scotland Yard, who fear that a small hard core of dissidents disaffected with the peace process still pose a threat.

Last month's IMC review warned that dissident republicans were a "continuing threat to the security forces", training members and acquiring equipment. "Their capacity for sustained campaigns is limited but they are prepared to resort to extreme violence."

It said the threat was greater in some areas, such as South Armagh. "They are heavily engaged in organised crime," the commission noted.

In February, the Continuity IRA said there would be "no decommissioning, no ceasefires and no surrender". It claimed responsibility for leaving explosive devices outside police stations in Belfast and East Tyrone.

The last major bomb attack in Northern Ireland was in August 1998, when the Real IRA planted a 500lb bomb in the market town of Omagh, killing 29 people and injuring 200. It was the single worst attack in the Northern Ireland conflict.

Since then, the peace ushered in by the Good Friday agreement has largely held.

South Korea claims the islands and calls them Dokdo.

Seoul has threatened to repel by force any unauthorized Japanese ships trying to enter its economic zone.

It says Japan would be responsible for any consequences.

Coast guard vessels and a surveillance plane have been sent to monitor the area.

Japan calls the islands Takeshima and announced earlier this week it intends to conduct an oceanographic survey in the area.

South Korea says Japan is trying to formalize a claim that dates back to its colonial occupation of Korea that ran from 1910 until the end of the Second World War.