CORRECTED-UPDATE 4-Catalan election weakens bid for independence from Spain
(Corrects billion to million in 20th paragraph)
* Catalan separatist parties win a majority in regional parliament
* Main separatist group CiU loses ground as austerity weighs
* Artur Mas may not have mandate to hold independence referendum
By Fiona Ortiz and Sarah Morris
BARCELONA, Spain, Nov 25 (Reuters) - Separatists in Spain's Catalonia won regional elections on Sunday but failed to get the resounding mandate they need to push convincingly for a referendum on independence.
Catalan President Artur Mas, who has implemented unpopular spending cuts in an economic crisis, had called an early election to test support for his new drive for independence for Catalonia, a wealthy region in northeastern Spain.
Voters handed almost two thirds of the 135-seat local parliament to four different Catalan separatist parties that all want to hold a referendum on secession from Spain.
But they punished the main separatist group, Mas's Convergence and Union alliance, or CiU, cutting back its seats to 50 from 62. That will make it difficult for Mas to lead a united drive to hold a referendum in defiance of the constitution and the central government in Madrid.
"Mas clearly made a mistake. He promoted a separatist agenda and the people have told him they want other people to carry out his agenda," said Jose Ignacio Torreblanca, head of the European Council on Foreign Relations' Madrid office.
The result will come as a relief for Spanish Prime Minister Mariano Rajoy, who is battling a deep recession and 25 percent unemployment while he struggles to cut high borrowing costs by convincing investors of Spain's fiscal and political stability.
Mas, surrounded by supporters chanting "independence, independence", said he would still try to carry out the referendum but added that, "it is more complex, but there is no need to give up on the process."
Resurgent Catalan separatism had become a major headache for Rajoy, threatening to provoke a constitutional crisis over the legality of a referendum just as he is trying to concentrate on a possible international bailout for troubled Spain.
Frustration over the Spanish tax system, under which Catalonia shares some of its tax revenue with the rest of the country, has revived a long-dormant secessionist spirit in Catalonia. Catalans believe if they could invest more of their taxes at home their economy would prosper.
Mas had tried to ride the separatist wave after hundreds of thousands demonstrated in the streets in September, demanding independence for their region, which has its own language and sees itself as distinct from the rest of Spain.
In a speech to supporters on Sunday night, Mas recognised that he had lost ground and though CiU is still the largest group in Catalan's parliament, he said would need the support of another party to govern and to continue pushing through tough economic measures.
"We've fallen well short of the majority we had. We've been ruling for two years under very tough circumstances," he said.
Traditional separatists the Republican Left, or ERC, won the second biggest presence in the Catalan parliament, with 21 seats. The Socialists took 20 seats. And Rajoy's centre-right People's Party won 19.
Three other parties, including two that want a referendum on independence, split the remaining 25 seats. ECFR's Torreblanca said the Catalan elections were similar to those around Europe in that economic woes have benefited marginal political groups, while larger, traditional parties have lost ground.
MAS MADE BIG BET
Mas's bet on separatism may have helped out the big winner of Sunday's election, the Republican Left, which more than doubled its seats in the Catalan parliament to 21 from 10,
"He talked about it so much that he ended up helping the only party that has always been for independence, which is the Republican Left," said political analyst Ismael Crespo at the Ortega y Gasset research institute.
A legal referendum would require a change to the constitution, and Spain's main parties in the national parliament, the Socialists and Rajoy's People's Party, have shown no appetite for that.
Mas's CiU had traditionally been a pro-business moderate nationalist party that fought for more autonomy and self-governance for Catalonia without breaking away from Spain.
Mas broke with that tradition in September when he made a big bet on a referendum.
Catalonia, with 7.5 million people, is more populous than Denmark. Its economy is almost as big as Portugal's and it generates one fifth of Spanish gross domestic product.
After a decade of overspending during Spain's real estate boom, Catalonia and most of the country's other regions are struggling to pay state workers and meet debt payments. Unemployment has soared and spending on hospitals and schools has been cut.
Mas was one of the first Spanish leaders to embark on harsh austerity measures after Catalonia's public deficit soared and the regional government was shunned by debt markets.
Josep Freixas, 37 and unemployed, voted for CiU but recognised the party had lost seats "because people have been really affected by the spending cuts and by the crisis."
At CiU headquarters on Sunday night Freixas carried a rolled up pro-independence flag - a single star against yellow and red stripes - that has become a symbol of the separatist movement.
Turnout was very high in the election, 68 percent, 10 percentage points higher than in the previous vote two years ago.
Many Catalans are angry that Rajoy has refused to negotiate a new tax deal with their largely self-governing region. Annually, an estimated 16 billion euros ($21 billion) in taxes paid in Catalonia, about 8 percent of its economic output, is not returned to the region.
Home to car factories and banks and birthplace of surrealist painter Salvador Dali and architect Antoni Gaudi, the region also has one of the world's most successful football clubs, FC Barcelona.
Wary that separatism could spread to the Basque Country and beyond, Rajoy said this week that the Catalan election was more important than general elections. (Editing by Myra MacDonald and Sandra Maler)
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