Buses, trains and trams were disrupted in many Italian cities while a demonstration in Rome drew thousands who protested against changes that unions fear will lead to a dilution of workers' rights.

"We're sick of these continual government programmes that always hit the weakest, the pensioners and workers and not those in the political elite or those with real economic power in Italy," said union member Mauro Rustici, a demonstrator in Rome.

Prime Minister Mario Monti's drive to cut through the thicket of rules that regulate Italy's services sector has also sparked demonstrations by taxi drivers and vocal protests from groups including lawyers and pharmacists.

His packet of measures still requires parliamentary approval. It follows a mix of spending cuts and tax hikes, including a sweeping reform of the pension system, that was passed before Christmas and which is intended to balance the budget by 2013 and reduce Italy's huge public debt.

The deregulation measures would increase the number of pharmacists, change the system that ensures a restricted number of taxi licences and abolish minimum fees for lawyers.

They also aim to open up the rail transport industry to private competition and allow new entrants to adopt labour contracts that do not contain the same protection as contracts offered by the state railways.

Further ahead, the government is also looking at overhauling labour market rules to introduce more flexibility and increase opportunities for younger workers.

Monti's government has dismissed fears the protests will push it off course and believes the changes have broad support among the population in general, which will gain from lower prices and more competition.

"The idea that deregulation is a sacrifice is mistaken. Deregulation is an opportunity," Cabinet Undersecretary Antonio Catricala told Reuters in an interview.

The protests have been relatively contained and the government's popularity appears to be holding up in opinion polls.

Objections to the mooted changes have been sharpened by growing pressure on household incomes as Italy heads into what is expected to be a severe recession in 2012.

Data from national statistics office Istat this week showed that the gap between consumer price inflation and wage growth was the widest since August 1995.

Blockades this week by truckers protesting against high fuel prices have caused serious disruptions to companies including Fiat (FIA.MI) and Coca Cola (KO.N) and led to bare shelves in many supermarkets.

(Writing By James Mackenzie; editing by Robert Woodward)

• A Permanent Economic Emergency