September 20, 2017 / 1:55 PM / 3 months ago

Escalating Catalonia crisis sours appetite for Spanish stocks

MILAN/MADRID, Sept 20 (Reuters) - Spain’s top stock index underperformed regional European stock peers on Wednesday as the crisis between the Spanish government and Catalonia deepened, with police carrying raids and arrests in a bid to stop a banned referendum on independence.

The IBEX fell more than 1 percent by late afternoon trading with financials the biggest drags. Euro zone stocks were off about 0.2 percent.

“The Catalan process is having quite an impact on the Ibex today”, Predrag Dukic, from CM Capital Markets in Madrid, told Reuters.

“The tone (of the central government) is definitely harder and that hits stocks” like Banco Sabadell Caixabank or pharmaceutical firm Grifols, the trader said.

Sabadell, along with Caixabank, have their headquarters in Catalonia.

Police efforts to stop the referendum, which the central government says is illegal, have intensified in recent days as the wealthy northeastern region shows no signs of halting it.

“Market are starting to realize how deep the crisis is”, said Jesus Castillo, an economist covering Southern Europe for French bank Natixis.

At 1337 GMT, Spain’s IBEX was down 1 percent, compared with a 0.1 percent decrease for Germany’s DAX, a flat performance for Britain’s FTSE 100 and a 0.1 percent rise in France’s CAC 40.

There was a slight underperformance of Spanish government bonds on Wednesday, with 10-year bond yields up around a basis point at 1.46 percent while most other euro zone bond yields were slightly lower on the day. There was no immediate reaction in Catalonian bonds. (Reporting by Danilo Masoni in Milan, Jose Elias Rodriguez in Madrid, Julien Ponthus, Helen Reid in London; Editing by Vikram Subhedar)

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