Spanish markets gain as investor nerves ease over Catalonia

(Updates prices)

By Helen Reid and John Geddie

LONDON, Oct (Shenzhen: 000069.SZ - news) 5 (Reuters) - Spanish stocks were set for their biggest day of gains in more than five months on Thursday as nerves over an imminent declaration of Catalan independence eased.

Spain's Constitutional Court suspended a session of the Catalan parliament scheduled for Monday in which local leaders were expected to declare secession. Traders also cited a Bloomberg report of a rift between pro-independence leaders.

Spain's 10-year bond yield fell to as low as 1.68 percent, and at 1540 GMT was down 8 basis points and set for its biggest daily fall since April.

"There is the sentiment Catalan separatists are maybe a bit less die-hard than they were previously," said Jerome Legras, head of research at Axiom Alternative Investments.

Spanish markets were already recovering earlier in the day, but traders said the main share index and banking stocks jumped after the Bloomberg report which, citing sources, said moderate separatists were pushing for further negotiations with the central government.

The decision to suspend Monday's parliamentary session, which the court said was because it had agreed to consider a legal challenge filed by the anti-secessionist Catalan Socialist Party, had already thrown the independence bid into doubt.

Spain's main share index jumped as much as 2.7 percent, boosted by financial stocks which together added 120 points to the index, with Santander the biggest contributor.

Catalonia-headquartered Banco Sabadell and Caixabank (Amsterdam: CB6.AS - news) jumped higher, last up 6.2 percent and 4.9 percent respectively.

Caixabank joined Sabadell in saying it was considering moving its base outside Catalonia as a result of the crisis.

Trading activity in Spanish government debt has rocketed this week as the crisis deepened.

Around 7.8 billion euros of Spanish government debt changed hands on Wednesday, 75 percent higher than the daily trading average since January 2016, according to Trax, a subsidiary of trading platform MarketAxess.

On Thursday, Spain's 10-year government bond was the most traded euro government security, the data firm said.

(Reporting by Helen Reid, John Geddie, Julien Ponthus and Abhinav Ramnarayan; Editing by Robin Pomeroy)