* Italian yields rise as Monti says quitting early * Move casts uncertainty over country's political future * Greek yields fall as buy-back seen successful By Marius Zaharia and Ana Nicolaci da Costa LONDON, Dec 10 (Reuters) - Italian government bond yields jumped on Monday after Prime Minister Mario Monti's decision to step down early raised worries over the future pace at which the heavily indebted country reforms its economy. Monti, a technocrat credited with having stabilised Italy's debt markets since replacing former premier Silvio Berlusconi late last year, said on Saturday he would resign once the 2013 budget was approved. The move, coming after Berlusconi's party withdrew its support for the government, brings forward to February an election that was already expected in March or April. Italian 10-year bond yields were last 28 basis points higher on the day to 4.823 percent, having risen as high as 4.91 percent earlier in the session. Two-year yields rose 36 bps to 2.354 percent. "What happened only brought the elections forward by about six weeks ... I'm not necessarily panicking about Italian politics right now," said Chris Scicluna, head of economic research at Daiwa Capital Markets. "But it provides an opportunity to sell some bonds after a big rally. Political uncertainty is going to reign until the election so I wouldn't expect yields to grind lower until then." The strong market reaction mainly reflects the fact that investors had not expected any noise in Italian politics until next year. Many of them were hoping to squeeze some more profit from a rally that had brought 10-year Italian yields 2 points lower from late July levels. "Part of the problem here is that investors outside of Italy are not positioned very well for this," said Justin Knight, European rates strategist at UBS. "They're quite close to neutral versus benchmarks, having previously been underweight of both Spain and Italy. Some investors are now overweight, and we have seen more investors going overweight over the last few weeks." Alessandro Giansanti, senior rate strategist at ING, estimated 10-year Italian yields could rise to 5.25 percent over the next two weeks. In fellow periphery struggler Spain, 10-year yields rose 9 bps to 5.58 percent. Spanish Economy Minister Luis de Guindos said on Monday his country, which continued to study the need for outside financial aid, would suffer contagion from Italy's political turmoil.GREECE'S BUY-BACK Part of the investors' attention was focused on Greece, which extended its offer to buy back debt until Tuesday, seeking more bids from bondholders after falling short of the target to retire bonds worth 30 billion euros. The International Monetary Fund has said it will decide on disbursing more aid money to Greece only after it sees the details of the buyback. Analysts said local banks are likely to bid more to make the buyback successful. The yield on the Feb. 2023 Greek bond fell 46 bps to 14.054 percent, its lowest since the paper was issued as part of a debt restructuring in March. If Greece goes ahead with the buy-back, the stock of debt held in private hands would be too small to offer politicians any incentives to further restructure those bonds, analysts say. "The extension of the deadline means there may be holders of remaining Greek debt that will be paid in full at maturity," Daiwa's Scicluna said.