By Deepa Babington

ANTRODOCO, Italy, Aug 27 (Reuters) - Like countless other
small towns across Italy suffering from the economic downturn,
Antrodoco has long prayed for an investor with deep pockets to
help revive its fortunes.

For a town in the shadow of a mountain where a pine grove
spells out "DUX" -- for 20th century fascist dictator Benito
Mussolini -- hope has come from an unexpected source: Libya.

Libyan leader Muammar Gaddafi has demonstrated a growing
interested in Italy for some time and will be visiting Rome for
talks with Prime Minister Silvio Berlusconi on Monday.

Set in green hills on a road between Rome and the Adriatic,
the unremarkable town of 3,000 caught Gaddafi's eye when he was
on his way to a Group of Eight summit in L'Aquila last year.

Antrodroco's Mayor Maurizio Faina said a Libyan delegation
returned later to say Gaddafi, known for his apparently
spontaneous decisions, was bowled over by local hospitality and
wanted to do something for the town.

The delegation said Libya wanted to invest as much as 15
million euros ($19 million) to build a luxury hotel and a
bottled water plant in the town, said a delighted Faina.

This was music to the ears of the mayor, whose town has
struggled with rising unemployment, lack of investment and an
exodus of its young people.

"The economic crisis is massive at the moment so this is
just huge for us. It could really put us on the tourist map," he
said, showing photos of Gaddafi in dark glasses surrounded by
smiling residents when he stopped here last year. "We were so
surprised. Investors are so hard to find these days."

At the Gelateria Bruno ice cream parlour in the main square,
Rina Boni has prepared an iced concoction with chunky dates to
honour Gaddafi. She calls the new flavour "Taste of the East".

"I thought we should make a gelato that pays homage to the
leader," she said. "How I wish we could present him with this
ice cream to taste! But protocol will not allow him to taste
anything not approved (by his entourage)."

GROWING INFLUENCE

The palpable excitement in Antrodoco at a rosy future backed
by Libyan money illustrates the growing influence the former
pariah state wields in its former colonial ruler Italy, where it
has snapped up stakes in major companies such as UniCredit bank.

While the United States and Britain grapple with difficult
ties with Libya, strained further by outrage over the release
from a Scottish prison last year of a terminally ill Libyan
convicted of the 1988 Lockerbie bombing, Italy has embraced
Gaddafi.

Residents may be wondering what exactly the Libyan leader
saw in their town -- "Perhaps he was taken in by the fresh air
and greenery here," muses Deputy Mayor Armando Nicoletti -- but
some Libya watchers are not surprised.

"The leader suddenly taking a fancy to a village and then
deciding to turn its fortunes around -- a lot of planning in
Libya was done like that," said Dirk Vandewalle, a professor at
Dartmouth College in the United States and a Libya expert.

Still, there may be nothing arbitrary about the political
dividends the wily Libyan leader stands to gain.

"The irony of a small village in what used to be a colonial
power being helped out by Libya, it makes for a lot of political
capital at home for Gaddafi," said Vandewalle.

"It's something quite symbolic. It's something Gaddafi can
say: 'After all the Italians have done to us, now they're
dependent on us'. Nothing escapes Gaddafi from the point of view
of portraying himself in the way he is."

Indeed, when Tripoli flew Antrodoco officials to Libya in
June to meet Gaddafi in his tent, Italian media reported the
event made it on to the front pages of Libyan newspapers, with
one, Al Manara, headlining its story: "Gaddafi saves an Italian
village from unemployment".

At his office, Faina showed photos of him meeting Gaddafi
and visiting a site bombed by the United States. Other officials
recall staying at a luxury waterfront hotel and being whisked
through VIP airport facilities.

Initially, the town presented three potential projects that
included a soccer stadium, but the Libyans opted for a hotel
next to a thermal spa complex and the bottling plant, said
Faina. Details of the deal remained unclear, but Libya had
promised work would start soon, he said.

SYMBIOTIC TIES

Rome and Tripoli kept up business ties even in the years
when Gaddafi lambasted Italy over its colonial rule, but deals
have accelerated recently while political ties have warmed.

Mindful of the $65 billion Libyan sovereign wealth fund's
spending power at a time of recession and Italy's own reliance
on Libyan oil imports, Berlusconi signed a friendship treaty
with Libya in 2008 which includes a $5 billion reparations deal
over colonial misdeeds.

Italy has since rolled out the red carpet for Gaddafi during
multiple visits in the space of a year, even allowing him to
address Romans from the Michelangelo-designed Campidoglio
square, an occasion he used to rail against elected government.

Libya, meanwhile, has made bought minority stakes in
UniCredit and the oil company Eni, and has expressed interest in
others such as power company Enel.

Economic analysts say Libya's investment drive in Italy has
only just begun, while Italian firms such as defence giant
Finmeccanica and builders like Impregilo stand to gain lucrative
contracts in Libya as it improves its infrastructure.

Gaddafi's visit to Italy on Monday marks the second
anniversary of the friendship treaty and among those invited to
attend a dinner in his honour are Mayor Faina and his entourage.

The invitation signed by Berlusconi has been tacked on to
the notice board in the main town square as a matter of pride.

"So many people ask, 'Why did Gaddafi stop in Antrodoco?'
said Faina. "We're very lucky indeed."
(Editing by Andrew Dobbie)