Italian centre-left leader Pier Luigi Bersani was left with slim hope of forming a government after last month’s deadlocked election, as talks with rival party leaders ended with a further rejection from Beppe Grillo’s 5-Star Movement.

The impasse in Italy has been closely watched by investors mindful of the turmoil that brought down Silvio Berlusconi’s government in 2011 and was reflected in rising borrowing costs at a bond auction yesterday.

Without an agreement, the country could be headed for fresh elections, adding to the uncertainty facing the eurozone which is battling to contain the crisis in Cyprus.

The rebuff by 5-Star was expected as the anti-establishment group has always said it will not back the parties it blames for Italy’s social and economic crisis, but it was given added spice by an insulting blog post by the fiery ex-comic Grillo.

Bersani said he would report to President Giorgio Napolitano today and called on all parties to “accept their responsibilities” and allow a government to be formed, but there was little sign of movement from the other parties.

“There are no conditions that would allow us to give a confidence vote to a government made of these parties because they have no credibility,” 5-Star’s Senate leader Vito Crimi said after meeting Bersani.

Some parliamentarians still held out hopes of some form of deal with the centre-right that would allow the election of a new president of the Republic acceptable to former prime minister Silvio Berlusconi’s bloc to succeed Napolitano, whose term ends in May.

However for the moment, Italy remains in political stalemate after the election, in which Bersani’s alliance won a majority in the lower house of Parliament but not in the Senate, leaving it unable to govern on its own.

The main marker of investor confidence, the spread between Italian 10-year bonds and their safer German counterparts, widened sharply this week. “Risks for Italian debt remain very high in the coming weeks,” said Annalisa Piazza, a market economist at Newedge, London.

“Although Bersani’s consultations with other political leaders might lead to a grand-coalition government, markets are aware that such a government won’t last long.”

If he cannot reach an agreement, Napolitano may appoint a respected outsider to try to form a technocrat government or a broad cross-party coalition. If that fails, Italy faces the prospect of a return to the polls, possibly within months.

Adding insult to injury, Grillo later posted an entry on his popular blog calling mainstream politicians including Berlusconi and Bersani “old whoremongers... who gaily take the p!!! every day with their daily appeals for governability”.

Bersani has ruled out forming a coalition with Berlusconi’s centre-right, the second largest force in parliament, which says an alliance of the two main political forces is the only way to give Italy a government.

He also downplayed talk of a deal over the presidency, a central demand by Berlusconi’s People of Freedom (PDL) party.