Italy moves closer to freeing ownership of cooperative banks

(Repeats to add word banks in headline)

ROME, March 12 (Reuters) - Italy's lower house of parliament on Thursday approved a reform that converts the country's largest cooperative banks into joint stock companies, a measure expected to spur mergers between so-called "popolari" lenders.

The Chamber of Deputies voted 290 to 149 to pass the decree that scraps ownership limits and a voting system that gave shareholders one vote each regardless of the size of their stake. The reform now moves to the Senate.

Prime Minister Matteo Renzi's government passed the measure as a decree last month and parliament has 60 days to convert it into law.

Renzi has hailed it as a major step towards strengthening the banking system by improving governance and increasing the efficiency of lenders including UBI Banca, Banco Popolare and Banca Popolare di Milano (Milan: PMI.MI - news) .

But the banks, which have considerable political clout, won a temporary reprieve by getting lawmakers to concede to popolari shareholders the option of setting a 5 percent cap on voting rights for two years.

The two-year period will have no practical impact until the completion of the banks' conversion into joint stock companies. Shares (Berlin: DI6.BE - news) in the popolari banks, including Banca Popolare di Milano and Popolare Emilia Romagna, extended gains after the vote. (Reporting by Steve Scherer and Giuseppe Fonte, editing by Valentina Za)