October 26, 2017 / 11:13 AM / a year ago

Spanish markets rise on report of possible Catalan election

LONDON (Reuters) - Spanish government bonds and stocks were in demand on Thursday after a media report said Catalonian President Carles Puigdemont was set to call a snap regional election for Dec. 20, a move that could ease tensions with Madrid.

Barcelona-based La Vanguardia said Puigdemont had taken the decision in a bid to persuade the government of Prime Minister Mariano Rajoy not to enforce direct rule in the region.

Puigdemont will make a statement at 1330 CET (1130 GMT), the regional government said.

“This news is positive for Spain because it looks like Puigdemont is looking for ways other than declaring independence,” said ING strategist Martin van Vliet.

“It sounds like he is calling these elections so that Madrid does not have to invoke article 155,” that would allow central government to suspend the wealthy region’s autonomy.

Spain’s 10-year government bond yield - which moves inversely to price - fell 6 basis points to 1.58 percent on the news.

Spain’s country stock index IBEX rose as much as 1.9 percent to a four-week high.

The gap between Spanish and German 10-year government bond yields — a keenly watched measure of market sentiment towards Spain — moved to its tightest in a month.

The spread between the two widened sharply earlier this month after Catalonia voted overwhelmingly in favor of breaking away from Spain, albeit on a low turnout, in an Oct. 1 referendum declared illegal by authorities in Madrid.

Reporting by Abhinav Ramnarayan and Danilo Masoni; Editing by John Geddie and John Stonestreet

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