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Barroso says Italy vote must not stop reform drive

ROME (Reuters) - Early elections in Italy must not hinder the economic reforms of Prime Minister Mario Monti, the head of the European Commission was quoted as saying on Sunday, in a sign of growing international concern over the political crisis in Rome.

Monti's surprise announcement on Saturday that he intended to resign early once next year's budget is approved has opened the prospect of an election in February, a few weeks before the natural end of his term in April.

Former Prime Minister Silvio Berlusconi, whose withdrawal of support for the technocrat government in parliament last week triggered the crisis, has already announced he will be running on a platform attacking Monti's economic policies.

Speaking to business daily Il Sole 24 Ore, European Commission President Jose Manuel Barroso said Italy, the euro zone's third largest economy, remained at risk of a renewed bout of financial crisis, despite months of improving market confidence.

"The next elections must not serve as a pretext for putting in doubt how indispensable these measures are," he said.

"The relative calm on the markets does not mean we are out of the crisis," he said.

Barroso's comments underlined the uncertainty created by the sudden acceleration of Italy's political crisis following Berlusconi's decision to turn his back on Monti, whose government his People of Freedom (PDL) party had backed in parliament for more than a year.

According to the daily Corriere della Sera, Monti himself said he had been besieged with questions on the crisis while attending a conference in Cannes in the south of France on Saturday.

"I did not reply all day to the many questions which I received, especially from foreigners. I noticed their amazement about the Italian situation," he was quoted as saying by the newspaper.

Italian 10 year bond yields, the main barometer of market opinion, rose last week as the crisis broke, reversing weeks of steady falls although they remain well short of the levels reached during last year's crisis.

The yield on the 10 year BTP stood at 4.5 percent at the end of last week, 323 basis points higher than the yield on lower risk German 10 year Bunds but much lower than the level of 7.3 percent seen last year.

The former European Commissioner came to power at the height of the financial crisis a year ago and was widely credited with restoring Italy's credibility on financial markets and with European partners after the scandal-plagued Berlusconi era.

(Reporting by James Mackenzie; editing by Barry Moody and Andrew Heavens)

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