What was Shylock's response to Portia's statement that he must show mercy?

Shylock's response to Portia's request for mercy is to insist on the justice of his cause. As far as he's concerned, he has the law on his side, and he's determined to ensure that the terms of the contract he made with Antonio are fulfilled to the letter.
Shylock's stubborn insistence on this point is designed to show that he's being unreasonable. As with Shylock's characterization in general, there's a good deal of prejudice involved here. At the time the play was written, Christians excoriated Jews for a number of reasons, but one of the most significant was the alleged narrow legalism of Judaism. Christians generally considered Judaism a religion of law, not spirit, and according to prevailing Christian orthodoxy, God came down to earth as Christ to fulfill the old Hebraic law through love.
In stipulating impossible conditions for the fulfillment of the contract—Shylock can have his pound of flesh, but only if he doesn't shed any blood—Portia is expressing the generally held contempt of earlier Christians for Jewish legalism. She's trying to show us what Christians at the time would've regarded as the absurd consequences that an overly strict adherence to the law, be it religious or secular, leads to.

In act four, scene one, Antonio says that he will honor the contract, and Portia responds by telling Shylock that he must show Antonio mercy. Portia then gives her famous mercy speech, in which she eloquently elaborates on the virtue of mercy. Portia says that mercy is "twice blessed" and is considered an "attribute to God himself." After Portia encourages Shylock to drop the case by showing mercy toward Antonio, Shylock responds by saying,

My deeds upon my head. I crave the law, The penalty, and forfeit of my bond (Shakespeare 4.1.195-196).

Bassanio then tells Shylock that he is willing to pay ten times the price of the bond in order to save his friend, but Shylock remains obstinate. Shylock's refusal to show Antonio mercy depicts his malevolent nature and portrays him as a heartless, callous individual. While Shylock can personally justify his actions, the audience views him in a negative light after listening to Portia's moving speech. Fortunately, Portia offers a strict interpretation of the contract that prevents Shylock from removing a pound of flesh from Antonio, thus saving his life.