UPDATE 1-Monti says Germany's Merkel not involved in Italian election
* Monti had said Merkel not keen on Italy centre-left win
* Uncertainty over vote sends Italian shares lower
ROME, Feb 21 (Reuters) - Italian Prime Minister Mario Monti rowed back on Thursday from comments suggesting that German Chancellor Angela Merkel did not want his centre-left rivals to win power.
Monti, leading a centrist coalition in a Feb. 24-25 election, was quoted a day earlier as saying he did not think Merkel had "any wish to see the PD in government", referring to the Democratic Party, the main centre-left force which has been leading in opinion polls.
He was responding to an assertion by his other main rival, Silvio Berlusconi, that Monti and PD leader Pier Luigi Bersani had already agreed to join forces "with Merkel's blessing".
In a video interview broadcast on the website of the daily Corriere della Sera on Thursday, Monti insisted Merkel would have no involvement in how Italy's next government is formed.
"I wanted to rebut what Berlusconi said yesterday and say that it was not only untrue but implausible," he said.
Monti denied "that there was any kind of conversation between me and the PD about an agreement - false - or that Mrs Merkel has even the slightest involvement".
In an increasingly bitter election campaign, Berlusconi has sought to paint Monti as a Merkel subordinate, following "German-centric" austerity policies ordered by Brussels and Berlin that he says have plunged Italy into recession.
On Thursday, German Finance Minister Wolfgang Schaeuble offered his support, saying "Things went well with Monti" but stressing that Berlin did not want to get involved in the campaign.
Monti in turn has accused the scandal-plagued Berlusconi of damaging Italy's international credibility and has highlighted his own image outside Italy as a guarantor of stability.
Underlining wariness of Berlusconi outside of Italy, the German president of the European Parliament Martin Schulz, who the media tycoon once compared to a Nazi concentration camp guard, on Thursday warned Italians not to vote for him.
"Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behaviour in government and personal escapades," Schulz was quoted as saying in German daily Bild.
WORRIES ABOUT REFORM HALT
Schulz is the latest in a line of German politicians to express fears about a possible Berlusconi comeback largely due to worries he will halt Rome's reform drive that has helped to lift investor confidence in the euro zone.
Some top European business executives have also publicly commented on the vote, with the chief executive of German lender Allianz, Michael Diekmann, saying on Thursday that Italy needed a pro-European government capable of taking strong action.
The comments could prove counterproductive however by backing up Berlusconi's assertions that European leaders and businesses are trying to meddle in Italian politics.
"I'm the one protecting Merkel from any arbitrary involvement in the Italian election that Berlusconi is attributing to her," Monti said.
He also denied that if he were to seek an agreement with the left he would need the "blessing" of the conservative German chancellor.
"It's a bit paradoxical when you think of it because Merkel and Berlusconi are part of the same political family," he said.
Most pollsters believe the centre left is still on course to win the elections, but a surge in support for Berlusconi after a media blitz in recent weeks and gains for anti-establishment comedian Beppe Grillo are increasing uncertainty.
Italian shares fell sharply on Thursday, weighed down by concerns over the unclear outcome of the vote. Milan's blue chip index slipped about 3 percent, underperforming other European bourses.
Italian 10-year bond yields rose 6 basis points to 4.48 percent, still well below a peak of 4.64 percent seen earlier this month.