* Some proposals dropped, measures face opposition, strikes

* Must be approved by parliament within 60 days

* PM Monti promises new package to cut red tape next week

By Giuseppe Fonte

ROME, Jan 20 (Reuters) - Italy's cabinet on Friday approved legislation to deregulate some service sectors and professions in an effort to increase competition, cut costs to consumers and boost chronically weak growth in the euro zone's third largest economy.

"We have adopted a package of structural reforms to help growth," Prime Minister Mario Monti said after an 8-hour cabinet meeting. "More competition means more chance for young people and less for rents and privilege."

With Italy in the frontline of the euro zone debt crisis, Monti is keen to convince markets that a sluggish, hidebound economy can be reformed, even if some commentators question the growth-boosting potential of the raft of micro-measures.

He said the reforms, affecting sectors ranging from pharmacies to banks, notaries and taxi drivers, were sure to meet with opposition because "many people prefer the status quo rather than facing new challenges".

Taxi drivers and lawyers have announced strikes against the measures, which are effective immediately but must be approved by parliament within 60 days or they will expire.

The package includes an abolition of minimum fees for all professional services, the issuance of 5,000 new pharmacy licences and the creation of an authority responsible for managing energy and infrastructure networks.

In future it will be possible to do part of the apprenticeships needed to join professional guilds at university.

However, ministers did not offer a full breakdown of the measures at a news conference.

Industry Minister Corrado Passera said the government had decided to suspend the so-called "beauty contest" to award new digital television frequencies, a method intended to award frequencies without charging operators for acquiring licences.

It has been heavily criticised for favouring big existing operators, including former Prime Minister Silvio Berlusconi's Mediaset group, Italy's biggest broadcaster.

INSIDERS

Monti's efforts to open up the "closed shop" mentality that has grown up around the professions in Italy is being fiercely opposed by the insiders who benefit.

Monti cited a study by the Bank of Italy estimating that increasing service competition could boost growth by 11 percent in the long run, with half of that coming during the first three years after reform.

The government, which has been working on the deregulation measures for weeks, watered down some of its initial proposals, including easing firing rules, abolishing limits on discount sales by retailers and increasing the number of taxi licenses.

Taxi drivers, traditionally a particularly militant group, have held weeks of wildcat strikes, including surrounding the prime minister's residence in Rome with their cars.

They announced further action to protest against the government's decision to assign the issuance of new licences to a transport authority rather than to mayors, on whom the taxi drivers feel they have more influence.

Monti said Italy's economy, which has lagged the euro zone average for every year since comparative records began to be compiled by Eurostat in 1996, was hampered by insufficient competition, poor infrastructures and excessive bureaucracy.

He said the first two problems were addressed by the package of measures adopted on Friday, while next week the governemnt would present another package aimed at cutting red tape.

Already under pressure from vested interests affected by his reforms, Monti was also attacked on Monday by Berlusconi, whom he depends on for his parliamentary majority.

Berlusconi told reporters that measures adopted so far by the new government had "produced no results" and that he was ready to return to power soon.

• A Permanent Economic Emergency