Catalan nationalists declare independence

The Catalan parliament has voted to declare independence from Spain as Mariano Rajoy's government prepares to introduce direct rule in the region.

A motion to secede from Spain was backed by 70 deputies in the local parliament on Friday - with two abstentions and 10 voting against - more than the 68 seats needed for a majority.

Separatist parties Junts pel Sí and the CUP introduced the motion after president Carles Puigdemont refused to back a call for elections in the region on Thursday.

Rajoy asked for calm in Spain after the declaration from Catalonia, promising to "restore" law and order in the country.

Pido tranquilidad a todos los españoles. El Estado de Derecho restaurará la legalidad en Cataluña. MR

— Mariano Rajoy Brey (@marianorajoy) October 27, 2017

The Senate in Madrid voted overwhelmingly to formally trigger Article 155, beginning the process of withdrawing the region's autonomy. A total of 214 senators voted to invoke the article, with 47 voting no and one abstention.

Regional and federal government have been at loggerheads in recent weeks after a controversial referendum on 1 October in which local authorities said a large majority had cast their ballots in favour of independence.

European Council president Donald Tusk has responded to the declaration by saying that "nothing changes" for the EU.

"Spain remains our only interlocutor. I hope the Spanish government favours force of argument, not argument of force," Tusk said.

Spain's primary stock market index, the Ibex 35, took a hit as the Catalan crisis reached unprecedented depths on Friday. It fell close to 2% in the afternoon, with the hardest hit being the country's financial sector.

"Catalan-based banks are leading the sell-off predictably enough, with Banco de Sabadell and CaixaBank down 4-5%, although they too are off the day’s lows," said ETX Capital analyst Neil Wilson.

"Spanish bond yields have risen but again not to levels seen earlier in the month. Despite investors taking some risk off the table, at present markets are fairly calm."

In reaction to the news, Angel Talavera at Oxford Economics told clients: "Equities have again been the most affected by the political turmoil, but bond yields are barely moving. We continue to expect a prolonged period of heightened political uncertainty which will take a toll on economic growth.

"However, we still believe that the impact will be relatively limited, so we are lowering our GDP growth by just 0.2 percentage points to 2.5% for 2018."