(Corrects month in paragraph 10 to June from March)
* Spain’s 10-year bond yield at highest since March
* Yield gap over Germany widest in over 5 months
* Spanish sovereign, bank CDS at multi-month highs
* Spanish crisis also weighs on Italy, Portugal bonds
By John Geddie
LONDON, Oct 4 (Reuters) - Spain’s government borrowing costs rose to their highest since March on Wednesday, stretching the gap over German peers to the widest in over five months.
The moves came after Catalonia’s secessionist leader said the region will declare independence in ”days following the weekend referendum which was declared illegal by Spain’s central government and marred by a violent police crackdown.
Pro-independence parties have asked for a parliamentary debate and vote on independence on Monday and leader Carles Puigdemont will make a statement at 1900 GMT on Wednesday.
The vote has thrown the euro zone’s fourth-largest economy into its worst constitutional crisis in decades. Thousands took to the streets to protest against Sunday’s violence that injured 900 people and, in a rare intervention, Spain’s king accused Catalan leaders of shattering democratic principles.
Investors worry the uncertainty could have repercussions for the economy and political stability in a country led by the minority government of Prime Minister Mariano Rajoy, a conservative who has taken a hard-line stance on the issue.
“Uncertainty on the next steps remains the key theme,” said Richard McGuire, head of rates strategy at Rabobank in London.
Spain’s 10-year bond yield rose as much as 7 basis points to 1.80 percent, according to Reuters data, the highest since mid-March.
That stretched the spread over German equivalents, which fell 3 basis points to a one-week low of 0.42 percent , to 136 basis points - the widest since late April.
Rabobank said the “odds are tilted to further widening towards 150 basis points”, which would be close to this year’s peak.
The cost of insuring exposure to Spanish debt via credit default swaps rose to the highest since June, according to IHS Markit.
Spain’s benchmark IBEX equity index fell almost 3 percent and was set for its biggest daily fall since June 24 2016, when Britain’s decision to leave European Union roiled financial markets.
Catalonian-based banks, Banco de Sabadell and Caixabank, both fell over 5 percent on the day.
Spain’s travails also hit debt markets in Italy, another low-rated southern European country. The spread between Italian and German 10-year bond yields hit its widest since June at 182 bps, according to Reuters data.
Demand for top-rated German bonds, which tend to benefit from times of stress was high, a trend that analysts said was also due to uncertainty over the likely successor to U.S. Federal Reserve Chair Janet Yellen.
Fed Governor Jerome Powell, viewed as dovish, has joined the race for the job alongside his predecessor Kevin Warsh to take over from Yellen whose term ends in February.
At an auction, there was firm demand for 2.4 billion euros of 10-year bonds sold by Germany.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by John Geddie; Additional reporting by Dhara Ranasinghe; Editing by Jeremy Gaunt