MORNING BID EUROPE-Italy - Europe's latest headache

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own.

LONDON, Dec (Shanghai: 600875.SS - news) 5 (Reuters) - Another troubled Monday morning for Europe. Austria may have avoided electing a far-right head of state but the bigger news was always going to Italy's constitutional referendum -- which, as widely expected, PM Matteo Renzi has lost. His impending resignation throws Italy into a new era of political uncertainty but the most pressing question right now surrounds efforts to save the country's third largest bank, Monte dei Paschi (Milan: BMPS.MI - news) , which is looking to raise 5 billion euros to stave off collapse. The euro has stabilised at $1.06 after falling as much as 1.4 percent overnight. It's too early to say what the longer term implications for Europe and its economy are, but what is clear is that Renzi is merely the latest in the long line of would-be reformers to fail and be punished accordingly.

Turning their attention to one of Europe's past crisis zones, euro zone finance ministers hope in Brussels today to reach a compromise on Greek reforms in a final bid to get IMF support for its bailout programme by the end of the year. If they are able to reach a deal, they are likely to hold a second meeting before Christmas to discuss Greek debt relief and the IMF's role.

In the UK, Theresa May's government goes to the Supreme Court to challenge a ruling that it needs parliamentary approval to start the process of leaving the European Union, a decision that could upset Britain's Brexit plans. If the Court dismisses the appeal it could derail May's timetable for triggering Article 50 of the Lisbon Treaty and leaving the EU. The hearing runs through to Thursday with a verdict due in January.

If all that is not news enough, French Prime Minister Manuel Valls is now expected to announce today that he will run for president in next year's election. Valls' office issued a statement that he would make a declaration at 1730 GMT at the town hall in Evry (Stuttgart: 906049.SG - news) , just south of Paris, but gave no further details.

MARKETS AT 0755 GMT

At least there's no post-mortem on the opinion polls this time. As largely predicted, Italy voted overwhelmingly against constitutional reform, PM Renzi plans to resign and not stand for appointment and the euro dived initially to 20-month low before bouncing. Italian bank stocks are expected to open about 6 percent lower and 10-year Italian sovereign bond spreads are up more than 10bp, though well below peaks of a couple of weeks ago. At it worst, the result leaves a political hiatus at a hypersensitive time for vulnerable Italian banks and draws calls from right wing and anti-establishment parties for a snap election that could well bring them to power in some form and possibly hasten a referendum on euro or even EU membership. In the most extreme scenario, an 'Exitaly" could collapse the EU completely. It's by no means the likely scenario - a technocrat government is likely to muddle on without snap elections - but the most extreme outcome is no longer fanciful after an unpredictable 2016. It's not hard to see why financial markets are nervous. The defeat for the Far Right in the race for the largely ceremonial post of Austrian President, while a relief for anxious markets, pales by comparison. The UK Supreme Court hearing on who triggers Brexit also kicks off today. Adding to the anxiety and arguably just as concerning for markets was the weekend row between US President-elect Trump and China over recognising Taiwan (Taiwan OTC: 6549.TWO - news) and aggravated by tweets from Trump late Sunday on Chinese currency manipulation. With China again making moves to try and stem capital flight, and warning of 'barbaric' practices of share acquisitions, the direction of the yuan and trade relations between the world's two biggest economies adds another layer of uncertainty to markets shaping up for an almost certain Fed interest rate rise next week. Shanghai stocks are down more than 1 percent earlier. At the very minimum, the constellation of events is likely to reinforce the mounting dollar strength - bolstered by another drop in the US unemployment rate on Friday - and gains that the BIS and others spotlight as an indicator of rising stress in the global financial system as much as any vote of confidence in Trumpononics. The resignation of New Zealand's Prime Minister in the thick of it and the sharp drop in the kiwi dollar only added to that too overnight. For Monday, all the focus will be on Italian bank stocks and Italian and peripheral euro zone sovereign bond spreads for indications of euro stress - with the added twist of how the ECB will respond on Thursday. Right now, the expectation is of at least a 6 month extension of QE - with the debate centring on tweaks or even tapering of bond buying and possible supper of any Italian bond selloff.

Upcoming events/data/ themes for market reports on Monday:

* Global Nov services PMI, including China

* Italy's PM Renzi to hand in resignation after referendum defeat

* UK Supreme Court starts three day hearing on who triggers Article 50 to start Brexit negotiations; expected to kick off about 11GMT

* Riksbank executive board meets

* EZ Oct retail sales

* Spain, Sweden Oct industry output

* Turkey Nov inflation

* BoE (Shenzhen: 200725.SZ - news) chief Carney speaks in Liverpool

* Chicago Fed chief Evans speaks in Chicago; St Louis Fed chief Bullard speaks in Phoenix (Editing by Andrew Heavens)