UPDATE 2-Italy's Monte Paschi finds no evidence of takeover bribes
* CEO Viola criticises former management, vital document not revealed
* Says no need of more state aid after 3.9 bln euro package
* PM Monti repeats confidence in Bank of Italy
MILAN, Jan 28 (Reuters) - Italy's troubled Monte dei Paschi bank said on Monday it had no evidence of bribery in a 2007 takeover now under scrutiny over alleged corruption, but acknowledged accounting irregularities under previous management over derivatives trades.
Fabrizio Viola, appointed as chief executive last year after a clean-out of Monte dei Paschi's old management, said the bank had used complex refinancing deals to hide losses, leaving it dangerously exposed to interest rates swings.
"Today, we have the certainty that errors were made, whether it was due to negligence or deliberate fault remains to be seen," Viola told a meeting with foreign journalists in Milan.
The bank, founded during the Renaissance in 1472 and based in the Tuscan town of Siena, has run into deep trouble since its 9 billion euro cash purchase of rival Banca Antonveneta in 2007, just before the global financial crash.
A source close to the judicial investigation told Reuters that magistrates were looking at the possibility of a bribe being paid at the time of the purchase.
The Antonveneta deal weakened the bank and appears to have forced it to try to conceal past losses through complex derivatives operations, which magistrates are also investigating.
"We have found some financial contracts ... that were from the start accounted in an incorrect way. These contracts had probably been put in place to spread over time the impact of losses made at the time, possibly also through other financial operations," said Viola.
Turmoil at Italy's third-largest bank has rocked the financial establishment and raised difficult questions in the middle of an election campaign for the government and the Bank of Italy over how risky deals could have been hidden from regulators. At the time the Bank of Italy's governor was Mario Draghi, who is now president of the European Central Bank.
Monte Paschi revealed last week losses of up to 720 million euros ($970 million) from trading derivatives and structured finance transactions between 2006-2009.
Viola said a vital document linking two of the financial transactions in question had been concealed in a safe at the bank's headquarters and not revealed to authorities until he had discovered it in October.
The bank, which has a "junk" credit rating, was forced to ask Rome last year for state support after failing to fill a capital gap as required by European regulators.
The case has shot to the top of the political agenda, less than a month before the elections, because of close links between Monte Paschi and regional governments led by the centre-left Democratic Party, which is leading in opinion polls.
Viola said Monte Paschi (MPS) would not need any more state aid above a 3.9 billion euro ($5.26 billion) package approved by the Bank of Italy on Saturday, but he said that the bank's financial portfolio needed to be rebalanced.
"I did not consider that the dimension and structure of the MPS financial portfolio was appropriate for a commercial bank," he said.
The Antonveneta purchase left Monte dei Paschi dangerously stretched and it has struggled to meet tough new capital requirements. The latest state aid, made up of bonds to be issued by the end of February, should guarantee the bank's immediate funding needs.
But this has raised speculation that the bank could end up being nationalised it cannot turn the situation around.
Chairman Alessandro Profumo, appointed last year with Viola to turn Monte dei Paschi around, told a newspaper on Sunday that his bank was looking for a long-term investor, a project which received the endorsement of Prime Minister Mario Monti.
"It makes sense to say that it needs more capital," Monti said during a talk show on Italy's La7 television channel.
On Monday, MPS shares, which lost some 20 percent of their value at the start of last week, rose 5 percent as investors focused on the prospect of a change of control at the bank.
"The return of interest from investors can, in our view, be associated with the possibility of radical changes in governance that the current earthquake at the bank may trigger in the medium term," ICBPI bank said in a broker's note.
Italy's main banking association ABI is due to meet later on Monday to discuss a successor to former president Giuseppe Mussari, who was chairman of Monte Paschi at the time of the deals and who resigned from his position at ABI last week.
Monti has called for the links to be broken up but he repeated his backing for the Bank of Italy and its former governor Draghi. "I want to confirm my full confidence in the Bank of Italy and in those who are in charge of it and who have been in charge of it," he said.
Economy Minister Vittorio Grilli is due to address the parliamentary finance committee on Tuesday on the Monte Paschi affair. Italy's financial stability committee, made up of representatives of the government, Bank of Italy and regulators is also expected to meet on Tuesday.