* C$ at C$1.0276 vs US$, or 97.31 U.S. cents * Worries over Italian election outcome hit stocks, euro * Carney reiterates bank view that rates must rise in time * Two-year bond yield at 7-month lows * 10-year bond yield near 2013 lows By Solarina Ho TORONTO, Feb 25 The Canadian dollar weakened to eight-month lows against its U.S. counterpart on Monday, tracking equity markets and the euro lower as investors worried that this week's Italian elections will produce a divided parliament that will hobble the country's economic reform efforts. The European news overshadowed a speech and news conference by Bank of Canada Governor Mark Carney, in which he reiterated that the next move for the country's interest rates is likely to be higher. Global markets and the euro fell after projections indicated none of the four main groups running in the Italian parliamentary election is likely to win a majority in the Senate. The outcome of the election is expected to hold the key to whether the current reform program in the euro zone's third-largest economy will continue uninterrupted. "Another election opens up the possibility than an anti-euro party could come into power and that would definitely be a negative for euro and for pretty much all global assets, so you're seeing that today in the Canadian dollar," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO. "We're just following suit here." The Canadian dollar closed at C$1.0276 versus the U.S. dollar, or 97.31 U.S. cents, weaker than Friday's North American session close at C$1.0208, or 97.96 U.S. cents. The currency at one point hit C$1.0278, its weakest level since June 29. The currency's weakness followed dismal Canadian retail sales and inflation numbers last week. Analysts said data later this week, including a report on the current account on Thursday and GDP data on Friday, could add to the gloom surrounding the currency's outlook. "The market's looking for another reason to take the Canadian dollar weaker at this point and we may get it as the week wears on," said Darcy Browne, managing director at CIBC's Capital Markets Trading. He added that the Canadian dollar could move to C$1.04 to C$1.05 against the greenback over the medium term. Last week's data further trimmed the likelihood that the Bank of Canada will raise interest rates this year. Canadian interest rates are at a near-record low 1 percent. The Bank of Canada has said since early last year its next move is likely to be a rate increase, making it the only Group of Seven central bank with a tightening bias. The weak economic data prompted some speculation the central bank could drop that tightening bias. But Carney's comments seemed to suggest the bank favors the status quo for now, said Benjamin Reitzes, a senior economist and foreign exchange strategist at Bank of Montreal "He still said that rates will still eventually have to go higher ... there's no reason to believe they're going to change things materially at this point," Reitzes said. The Canadian dollar's performance was mixed against other major currencies, weakening against Australia's fellow commodities-linked dollar, but firming against the slumping euro. Government bond prices rose across the curve, tracking U.S. Treasuries. The price of a two-year Canadian government bond climbed 10 Canadian cents, yielding 1.019 percent, its lowest level in seven months. The benchmark 10-year bond jumped 53 Canadian cents, yielding 1.883 percent, its lowest level since the beginning of this year.