* Kosovo independence declaration ruled to be legal
* Serbia suffers major setback in ruling
* Move could embolden other separatist movements
(Adds Clinton, EU, details throughout)
By Adam Tanner and Reed Stevenson
THE HAGUE, July 22 Kosovo's unilateral secession from Serbia in 2008 did not violate international law, the World Court said on Thursday in a decision with implications for separatist movements everywhere.
The non-binding, but clear-cut ruling by the International Court of Justice is a major blow to Serbia and will complicate efforts to draw the former pariah ex-Yugoslav republic into the European Union.
It is likely to lead to more states following the United States, Britain and 67 other countries in recognising ethnic-Albanian dominated Kosovo, which broke away after NATO intervened to end a brutal crackdown on separatism by Belgrade.
It may also embolden breakaway regions in countries ranging from India and Iraq to Serbia's war-torn neighbour and fellow former Yugoslav republic Bosnia to seek more autonomy.
"The court considers that general international law contains no applicable prohibition of declaration of independence," Judge Hisashi Owada, president of the ICJ, said in the clear majority ruling delivered in a cavernous hall at the Hague-based ICJ.
"Accordingly it concludes that the declaration of independence of the 17th of February 2008 did not violate general international law."
Serbian President Boris Tadic insisted Kosovo remained part of Serbia, a statement which, alongside the unequivocal nature of the ruling, threw confusion over Serbia's path towards EU membership, seen in the West as a way to stabilise the Balkans.
"Serbia will never recognise the unilaterally proclaimed independence of Kosovo," Tadic said.
News of the court's decision prompted celebrations in the Kosovo capital Pristina, where people drove through the streets waving Kosovo, U.S. and British flags and shouting "USA, USA!".
U.S. Secretary of State Hillary Clinton said everyone should move beyond the issue of Kosovo's status and seek cooperation.
Kosovo Foreign Minister Skender Hyseni said the ruling would compel Serbia to deal with it as a sovereign state.
"I expect Serbia to turn and come to us, to talk with us on so many issues of mutual interest, of mutual importance," Hyseni told Reuters. "But such talks can only take place as talks between sovereign states."
In the flashpoint northern Kosovo town of Mitrovica, Albanians fired bullets in the air and let off firecrackers while Serbs gathered in their part of town and international forces blocked bridges across the river dividing the two sides.
In Serbia the Orthodox Church, which has deep roots in Kosovo, rang church bells and led prayers.
Serbia's dinar currency hit all-time lows, forcing the central bank to intervene for the second day in a row.
CLEAR RULING, CLEAR OPPOSING SIDES
Serbia lost control of Kosovo in 1999 when a 78-day NATO bombing campaign ended a two-year war between Serbia and ethnic Kosovo Albanians, and put in place a U.N. administration and a NATO-monitored ceasefire.
The reaction of Serbia's ally Russia to the ruling contrasted sharply with that of the United States, a reminder of Cold War tensions and of the risk of a continued impasse in the region, one of the poorest corners of Europe.
Russia's Foreign Ministry said the court's decision did not provide a legal basis for Kosovo's independence since it only refered to the declaration of independence and did not address the legality of consequences such as statehood or recognition.
Analysts said the ruling left little room for doubt.
"I don't think anyone was expecting that. It is a clear, strong and unambiguous statement in favor of Kosovo's independence," said Marko Prelec of think tank the International Crisis Group.
"It will strengthen Kosovo's position vis a vis Serbia in the international scenes and weaken Serbia's position. There will be many more recognitions now."
The ruling was being watched closely by other nations grappling with calls for secession from within their borders.
"This is bad news to a number of governments dealing with separatist movements," said Edwin Bakker, researcher at the Clingendael Institute of International Relations. "This ruling brings Kosovo's entry in the U.N. much closer."
Georgia filed a lawsuit in 2008 against Russia at the same court, saying that Russia's incursion into South Ossetia and Abkhazia amounted to ethnic cleansing. Spain, which has its own regions seeking greater autonomy, has said it will not recognise an independent Kosovo.
"The decision of the International Court once more confirms the right of Abkhazia and South Ossetia to self-rule," said Sergei Bagapsh, president of the Russian-backed breakaway Georgian region of Abkhazia.
In the Balkans, the ruling could fortify separatist sentiments in the Serb half of Bosnia, another former Yugoslav republic which remains divided along ethnic lines.