(Clarifies milestone in 5th paragraph)
* Spanish government borrowing costs surge
* Stock market opens down more than 1 pct
* Euro drifts lower against U.S. dollar
By John Geddie
LONDON, Oct 2 (Reuters) - Spain’s government borrowing costs surged, stocks slumped and the euro drifted lower against the dollar on Monday after a violent police crackdown on an independence vote in Catalonia declared illegal by Madrid.
Regional officials said 90 percent of voters in Sunday’s ballot favoured secession, opening the possibility of a unilateral declaration of independence in the industrial and tourism powerhouse that accounts for a fifth of Spain’s economy.
Catalan officials said more than 800 people were injured in clashes with Spanish riot police.
“Whether independence will actually happen remains unclear. What is clear is that Spain has entered a deep political crisis,” ING’s global head of debt and rates strategy, Padhraic Garvey, said.
Spanish government bond yields rose as much as 7 basis points to 1.69 percent, stretching the gap with benchmark German equivalents to close to its widest in nearly four months.
Spain’s benchmark IBEX equity index was down 1.3 percent in early deals, led lower by falls among Spanish banks.
Banco de Sabadell and Caixabank, both based in Catalonia, dropped 3.2 percent and 1.8 percent respectively.
The impact outside of Spain was modest, with the euro losing 0.6 percent against a broadly-stronger U.S. dollar.
The sharp rise in Spanish bond yields also pulled Italian peers to their highest in 2-1/2 months, up as much as 5 bps at 2.22 percent.
“The weekend’s events in Spain underline how neither Europe’s national governments nor its supranational institutions have yet to offer a workable formula to counteract the political forces working to drive the EU apart,” said James Barnes of Gavekal Research in Hong Kong.
“That failure threatens to add considerably to the risk premium on European assets when the next cyclical downswing inevitably sets in.” (Reporting by John Geddie, Kit Rees and Helen Reid; Editing by Robin Pomeroy)