MILAN, Feb 25 (Reuters) - Italian shares extended a rally and bonds gained after the first exit polls from a crucial Italian general election showed the pro-reform, centre-left Democratic Party was leading Silvio Berlusconi's conservative bloc.
Italy's main FTSE MIB stock market index extended gains and was up 3 percent at 1411 GMT, while the bond yield spread between 10-year Italian and German bonds dipped below 260 basis points, its lowest since the start of February.
"From the polls, it looks like (PD leader Pierluigi) Bersani has got it, even in the Senate (upper house), though there's a bit of doubt surrounding the outcome in the swing Lombardy region," said a fund manager at a large Milan investment house.
"The market didn't want Berlusconi back in the driving seat and the polls are showing the centre-right is coming out a loser. It will be Bersani who decides whether he needs (centrist Prime Minister Mario) Monti or not." (Reporting By Lisa Jucca and Stephen Jewkes; editing by Keith Weir)