LONDON, Feb 9 (Reuters) - Greek bond yields rose by up to 120 basis points on Monday after Prime Minister Alexis Tsipras struck a defiant tone in his first speech in parliament to the intensifying pressure on newly downgraded Athens.
Tsipras laid out a list of measures to reverse the austerity imposed by the European Union and the International Monetary Fund and vowed not to extend the current bailout deal.
Addressing parliament for the first time after last month's elections, he said he would instead seek a bridge loan in the next two weeks to keep Greece afloat. His finance minister Yanis Varoufakis warned that the euro would collapse if Greece were to leave the shared currency.
"The possibility of Greece leaving the euro zone has increased with this speech from 35 percent to 50 percent," said Gary Jenkins, chief credit strategist at LNG Capital.
Greek 10-year yields rose 59 basis points to 11.04 percent at the open on Monday, while three-year yields shot up 120 basis points to 19.18 percent.
There was little sign that EU capitals were willing to accept a reversal of Greek austerity measures or to extend loans that would buy time to negotiate with Athens.
Instead the country is under increasing pressure to stick to the commitments attached to the 240 billion euros worth of EU/IMF loans. The ECB said it would stop accepting Greek debt in return for funding from Wednesday, forcing local banks to seek more expensive emergency lending from the Greek central bank.
On Friday, Standard & Poor's cut Greece's sovereign debt rating to B- from B, warning that liquidity restraints on local banks would limit the time the new government has to clinch a deal with its creditors. Moody's placed its Caa1 rating on review for downgrade.
Italian and Spanish 10-year bond yields rose 4 basis points each to 1.62 percent and 1.53 percent, respectively. Portuguese yields were up 7 basis points at 2.30 percent.
"We're seeing more tough rhetoric from the Greek government and that's making investors nervous," said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.
"An early resolution does not seem likely. There are no signs of compromise."
He said, however, that unless the worst case scenario - a Greek exit from the euro zone - materialises, investors are unlikely to panic.
The European Central Bank will start buying government bonds in March as part of a programme to pump more than a trillion euros in the bloc's stagnating economy. That prospect is limiting the selling pressure in high-yielding debt.
German 10-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.37 percent. They were expected to remain near their record lows for as long as the Greek stand-off drags on. (Editing by Hugh Lawson)