* Catalan leader due to address parliament at 1600 GMT
* Could ask for independence declaration
* Yields nudge away from low visited on Monday (Updates throughout)
By John Geddie
LONDON, Oct 10 (Reuters) - Spanish government bond yields held above one-week lows on Tuesday as investors awaited a speech from Catalonia’s secessionist leader in which he could ask the regional government to declare independence from Spain.
Yields, which move inversely to prices, have fallen over the last couple of trading sessions on hopes that economic and political pressures may temper Carles Puigdemont’s address to the Catalan parliament at 6 p.m. (1600 GMT).
Spanish bond yields were volatile on Tuesday, but held above lows hit the previous session as some investors prepared for a unilateral declaration which Madrid has vowed to respond to immediately.
In late trade, Spain’s 10-year bond yield was 2.5 basis points higher at 1.70 percent, off Monday’s low of 1.64 percent.
It had opened higher, fell briefly, then headed back up again, remaining some distance from six-month highs of 1.81 percent hit last week after the illegal referendum that was marred by a violent police crackdown.
German equivalents flatlined at 0.45 percent, while most other euro zone bond yields were little changed.
“It seems that the most likely path forward is one of escalation by the separatists with a declaration of independence this week,” said Apolline Menut, an economist at Barclays.
One of the options at Madrid’s disposal is to trigger Article 155 of the constitution, which allows central government to take control of devolved powers.
Analysts said such a move was a “nuclear option” that would inflame tensions and could further taint the reputation of Prime Minister Mariano Rajoy who leads a minority government.
Alexander Aldinger, a strategist with BayernLB, said the risk premium on Spanish bonds could climb back to at least last week’s level and the gap between German and Spanish yields could be “significantly higher”.
Credit rating agency DBRS said that any declaration of independence by Catalonia would have no “practical implications” for Spain in the near-term and therefore not impact the country’s rating.
In a sign of concerns on the ground, some Catalan savers were shifting their bank accounts to lenders and branches in other regions of Spain on Monday. A number of Catalan firms have also decided to relocate their offices out of the region.
Banks meanwhile borrowed more at the European Central Bank’s weekly auction on Tuesday than at any point over the past six months, in a week marked by market concerns about a potential break away of Catalonia from Spain.
Elsewhere, National Bank of Greece is selling the country’s first bank bond in the public market since 2014, another crucial step in the country’s bid to re-establish financial independence.
Italy was also in focus after the government called on Tuesday for confidence votes in the lower house of parliament to try to force through an electoral law that is likely to penalise the anti-establishment 5-Star Movement.
Additional reporting by Dhara Ranasinghe; Editing by Raissa Kasolowsky, Ed Osmond and Toby Davis