UPDATE 2-Monte Paschi probe to widen as Italian election nears
* Monte Paschi, world's oldest bank, caught in derivatives scandal
* Magistrates in three Italian cities investigate bank
* Scandal affecting election campaign, casts shadow on ECB's Draghi
ROME, Feb 2 (Reuters) - A plan by Italy's central bank to use bonds to bail out the troubled Monte Paschi bank can go ahead, a court ruled on Saturday, as a scandal surrounding the world's oldest lender looked likely to widen three weeks before a national election.
Magistrates in three cities investigating the Tuscan bank were poised to issue new summonses for more witnesses to give information next week following testimony by a raft of bankers in the past few days, leading newspapers said.
The bank is under investigation over an opaque series of derivatives and structured finance contracts between 2007 and 2009 that have left it facing losses of 720 million euros and dependant on the state lifeline.
Former prime minister Silvio Berlusconi, leading the centre-right's election charge, has tried to cash in on the bank's woes to attack both his centre-left rivals and outgoing prime minister Mario Monti, whose Treasury approved the Monte Paschi bailout.
A Rome administrative tribunal turned down a request by Italy's leading consumer group, Codacons, for the immediate suspension of the plan by the Bank of Italy to use 3.9 billion euros ($5.34 billion) in bonds to shore up the bank.
The court set a new hearing for Feb. 20.
Tuscany is a traditionally leftist area and Monte Paschi has for decades had close ties to leftist parties such as the Democratic Party, the largest in the centre-left opposition coalition.
"We are convinced that the Italian left has much to say about (Monte Paschi) and instead is not saying anything," Angelino Alfano, the centre-right's candidate for prime minister, said on Saturday.
"People want clarity and want to know if there is a link between decisions by the Italian left and their disastrous effects on a such a large bank."
BANK SCANDAL A POLITICAL FOOTBALL
Opinion polls suggest the bank scandal has so far had only a slight effect on voting intentions for the Feb. 24-25 election, which the centre-left is still expected to win, although its lead is narrowing.
Monte Paschi is accused of having overpaid in a 9 billion euro ($12 billion) purchase of rival Antonveneta in 2007, stretching its finances to the limits, and of having made risky derivatives trades in 2006-2009 aimed at massaging its accounts.
Prosecutors are investigating whether bribes were paid at the time the bank bought Antonveneta. They also suspect fraud was involved in the derivatives deals, which could cost the bank 720 million euros.
The scandal has spread from the rolling hills of Tuscany to the skyscraper that houses the European Central Bank (ECB) in Frankfurt.
ECB head Mario Draghi was Bank of Italy governor at the time of Monte Paschi's risky operations and has been accused of lax oversight on his watch.
Despite being deeply concerned by Monte Paschi as long ago as 2009 and having specific and growing doubts about its operations and accounts, the Bank of Italy revealed that it did not summon the bank's management until late 2011 and applied no sanctions until after the executives stepped down last year.
Mario Borghezio, an outspoken member of the European parliament for the Northern League, said he had submitted a question to the European Commission on whether Draghi was now fit to become the supervisor for the entire euro zone.
After the court hearing on Saturday, Codacons called on the central bank's governor to resign and for an administrator to be appointed to run Monte Paschi.
Codacons has accused Bank of Italy supervisors of failing in their oversight when Monte Paschi undertook the complicated derivatives operations.
It had asked the court to block the central bank's plans to issue so-called Monti bonds to cover the losses run up by Monte Paschi. It is also suing the central bank for 3.9 billion euro ($5.34 billion), the same amount of bonds it wants blocked.
In a statement, the Bank of Italy said it would release the court documents concerning the bond issue ahead of the Feb. 20 hearing and rejected Codacons' accusations as "unfounded and presumptuous".
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