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UPDATE 1-Italian bonds set for worst week of year as election looms

* Italian 10-year bond yields up 10 bps this week

* Biggest weekly rise of the year as March 4 election nears

* Italian/German bond yield gap widest since Jan

* ECB's Coeure to speak later in day

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates throughout)

LONDON, Feb 23 (Reuters) - Italy's 10-year government bond yield was poised on Friday for its biggest weekly rise of the year so far, reflecting growing unease about a national election, just around the corner, that is expected to result in a hung parliament.

Italian bond markets have proved resilient in the run-up to the March 4 election thanks to a stronger euro zone economy, a ratings upgrade, a fall in risks of a euro-zone break-up and a toning down of anti-euro rhetoric from populist parties.

But with the election just over a week away some unease has crept into markets, leading to an underperformance of Italian debt and gains for safe-haven German bonds.

Latest polls point to a hung parliament, where no single party or coalition has an outright majority to form a government, with analysts expecting a period of short-term volatility that could weigh on bond and stock markets.

Italy's 10-year bond yield was up 2 basis points at 2.09 percent. It has risen about 10 bps this week, set for its biggest weekly rise since December, according to Tradeweb data.

That has left the gap between Italian bond yields and those of benchmark euro zone issuer Germany at around 140 bps, its widest since January.

Still, this gap - a gauge of how investors view relative country risks - is not far from where it stood in early February at around 126 bps -- which was the tightest in over a year.

"If I just observe bond yield spreads for now, they have compressed, which suggests there is confidence relative to the outcome of the Italian election," said J Patrick Bradley, senior vice president, investment research at Brandywine Global.

"That is surprising given the uncertainty of the outcome."

The cost of insuring exposure to Italian sovereign debt hit the highest in more than five weeks. Italy's 5-year credit default swaps rose by 1 basis point from Thursday's close to 105 bps, according to data from IHS Markit.

Most euro zone bond yields fell on Friday, with Germany's 10-year Bund yield at a 2-1/2 week low at 0.67 percent .

Italian bonds underperformed as markets also digested new bond supply from Italy.

Analysts noted comments from European Commission President Jean-Claude Juncker this week, who was reported warning about Italian election risks.

"Some long forgotten patterns return to euro bond markets with Bunds rallying while Italy sells off," said Commerzbank rates strategist Christoph Rieger.

"Juncker's election warning seems more like an excuse rather than an explanation, but it underscores that markets should become increasingly jittery in coming days when the election grabs more headlines."

(Reporting by Dhara Ranasinghe; Additional reporting by Karin Strohecker; Editing by Richard Balmforth)