Confirming comments to Reuters from sources earlier on Monday, Monte dei Paschi (MPS) said its board had hired Credit Suisse to help Mediobanca in the task of studying strategic options and sounding out market interest for the Tuscan bank.

Despite the turmoil in the ruling coalition which risks precipitating a government crisis, the Italian Treasury is moving forward with plans to cut its 64% stake in MPS and meet pledges made to the European Union as part of the 2017 bailout.

Rome has identified UniCredit as the ideal merger partner for MPS, sources have said previously, but Italy's second-biggest bank wants strict terms to be met before considering an acquisition and is yet to sign a confidentiality agreement.

The Treasury wants to see if Banco BPM, Italy's third-largest bank which Rome last year had looked at as a possible partner for MPS, could be interested in entering the data room, one of the sources said.

Banco BPM was not immediately available to comment.

UniCredit, which is in the process of picking a new chief executive after Jean Pierre Mustier decided to step down by April, would only consider a deal that did not affect its capital reserves.

It also wants to be sure that the package of incentives Rome is readying to ease a sale will be approved in Brussels and Frankfurt, the sources have said.

UniCredit's board is expected to examine a list of CEO candidates at a meeting on Wednesday before taking a final decision in early February.

In the latest push to get the Milan-based bank to consider the deal, Rome is studying a plan to shift at least 14 billion euros in impaired loans from UniCredit to state-backed loan manager AMCO, sources have said.

That could rise further to 20 billion to 21 billion euros, accounting for almost all of UniCredit's 22.7 billion euros in problematic debts at the end of September, one source added.

The Treasury has also set aside 1.5 billion euros to cover part of an up to 2.5 billion euros capital shortfall at MPS.

The Siena-based bank must tell the European Central Bank by the end of January how it plans to fill the gap. MPS said on Monday it was pushing back by around 10 days to Jan. 28 the board meeting called to approve the capital measures.

Tax breaks introduced by Rome for mergers taking place in 2021 would entail a 2.4 billion euro net benefit for UniCredit if it took on loss-making MPS.

But a potential takeover has resistance from inside bank as well as among some of UniCredit's leading domestic investors.

To remove the key hurdle to a potential deal, Italy is working on a complex scheme entailing both guarantees and a possible spin-off involving state-owned firm Fintecna to address around 10 billion euros in claims, both judicial and out of court, faced by MPS.

(Reporting by Giuseppe Fonte and Valentina Za; Editing by Kirsten Donovan, David Evans and Jonathan Oatis)

By Giuseppe Fonte and Valentina Za