Italian Prime Minister Silvio Berlusconi, under massive pressure to resign, faces a crucial vote on public finances in parliament on Tuesday which could sink his government if enough party rebels desert him.

Berlusconi has denied reports that his resignation is imminent as he struggles to hold his centre-right coalition together, but the increased political uncertainty in Italy has added to turmoil in Europe, hitting global markets on Monday.

I'm not leaving, was the headline in the fanatically pro-Berlusconi newspaper Il Giornale, owned by his brother.

Il Giornale compared him to Jesus and the defectors to Judas. I want to look those who betray me in the face, the newspaper quoted him as saying.

Chances of defeat in the vote seem to be receding because the centre-left opposition may abstain to highlight Berlusconi's lack of support, without hindering the essential ratification of 2010's public accounts.

Guido Crosetto, a government undersecretary, told a morning talk show that he thought the government would win Tuesday's vote but that he was pessimistic about how long it could last after that.

The centre-left opposition is preparing a subsequent no-confidence motion that could be held within days.

Rome's left-leaning La Repubblica newspaper, traditionally highly critical of Berlusconi, said he should read the writing on the wall after Monday's market rally on rumours that he was about to step down. The markets fell back again when he denied them.

We don't know when, but Berlusconi's tree will topple and markets will take off, it said on Tuesday.

The government's borrowing costs have risen sharply. Yields on Italy's 10-year bonds touched another record on Tuesday morning at 6.71 percent, a level seen as unsustainable for Italy's massive debt and which could spiral out of control.

Italy has the third biggest economy in the euro zone and its debt worries are a huge threat in the wider crisis facing the continent's single currency.

Berlusconi's failure to adopt reforms swiftly to defuse the debt crisis has fuelled dissent within his party, though estimates vary widely over how many centre-right deputies will jump ship in the key vote in the lower house due in the late afternoon or early evening. The debate starts at 1430 GMT.

The 75-year-old prime minister has been trying to win back the support of enough defectors to avoid humiliating defeat in the vote, which he has already lost once.

If he is defeated again, Berlusconi could either resign immediately or be ordered by President Giorgio Napolitano to call a confidence vote.

BERLUSCONI DEFIANT

Berlusconi reiterated his determination to continue at the helm of the government on Monday even though several people close to him, including Interior Minister Roberto Maroni, have said they believe he no longer has a majority.

We will carry on, we have to be ready to fight because a new unelected government including the left would be the opposite of democracy, Berlusconi posted on his Facebook page on Monday evening.

Italy's government bond prices would recover and the yield spreads would narrow by a full percentage point if the government fell, according to a Reuters survey of 10 fund managers last week.

But even if he goes, there is uncertainty about how Italy can tackle the crisis. Berlusconi and his Northern League allies have insisted the only alternative to him is an election early next year, likely to push back reforms even further.

The possibility of a national unity or technocrat government, preferred by markets, is opposed by Berlusconi and League leaders whose parliamentary support may be needed for it to function.

(Editing by Giles Elgood)