(Writes through)
By Marius Zaharia
LONDON, Feb 9 (Reuters) - Greek financial markets sank further on Monday after Prime Minister Alexis Tsipras made a speech showing little intention of sticking to the terms of the international bailout keeping Greece afloat.
Other European markets also felt some limited selling pressure due to concerns about Greece, which had its credit rating cut by Standard & Poor's on Friday.
An index of Greek banking stocks fell almost 10 percent close to record lows, pushing the Athens bourse's main index nearly to the lowest levels since the country's 2012 debt restructuring. Government bond yields rose by up to 3.7 percentage points, with three year yields nearing 22 percent.
Having returned home empty-handed from a week-long European tour in search for allies, 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 his hard left Syriza party won elections last month, he said he would instead seek a bridge loan in the next two weeks to keep Greece afloat.
"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.
Finance minister Yanis Varoufakis warned that the euro would collapse if Greece were to leave the shared currency.
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. The market pressure on them to ease their stance was limited also.
Spanish, Italian and Portuguese 10-year bond yields were up only 3-6 bps on the day but remained close to their troughs, with investors finding comfort in the fact that the European Central Bank will start buying government bonds next month.
Other defence mechanisms, such as the European Stability Mechanism bailout fund and the Outright Monetary Transactions ECB intervention scheme in troubled, but reforming markets helped insulate the rest of Europe for now.
"Part of the problem is both sides feel emboldened. Greece is in a better economic situation than it was before ... and the government has a strong mandate from the people to change," said Ilan Solot, a strategist at Brown Brothers Harriman.
"But the EU is emboldened too because there are a lot more backstops than before .. .and you can see the contagion is so much smaller. If both sides feel more emboldened it makes it more difficult to negotiate."