By Marius Zaharia and Paul Day
LONDON/MADRID Sept 28 (Reuters) - Spanish bond yields fell on Monday after regional elections in Catalonia gave secessionists a parliamentary majority but appeared not to have advanced a broader case for independence from Spain.
Spain's stock market gave up early gains but losses were smaller than on other major European bourses.
Stock and bond investors have been concerned that a breakaway movement gathering pace in the region could cause political and financial instability in the euro zone's fourth largest economy.
Secessionist parties won 72 of the 135 seats on Sunday in the legislature of Spain's wealthiest region, prompting the acting head of the regional government, Artur Mas, to claim the result as a "yes" for independence. He is expected to push ahead with his campaign.
The same parties won 47.8 percent of the vote, and analysts suggested that statistic had removed any immediate risk of a breakaway which, in view of constitutional hurdles and steadfast opposition from central government in Madrid, remains purely hypothetical.
The result, on a record turnout of 78 percent, was however likely to strengthen the hand of the regional government in talks with Madrid over devolutionary concessions, they said.
Spanish Prime Minister Mariano Rajoy said on Monday he was ready to collaborate with the next Catalan government but always "within the law".
"What came out from the local elections is that there is a majority for independence parties, but at the same time they did not reach an absolute majority," BNP Paribas rate strategist Patrick Jacq said.
"If there is a referendum for independence, it's not clear that "yes" would win."
Spain's banks, including some based in the Catalan capital Barcelona, have warned secession could cause financial turmoil and the Spanish central bank has said the region risked exiting the euro.
Shares in Catalan lenders Caixabank and Banco Sabadell fell 1.6 percent and 0.3 percent respectively on Monday. Spain's Santander and Banco Popular Espanol were down 2.2 percent and 1.5 percent respectively.
Spanish stocks dropped 1 percent, less than other European shares fell due to global growth concerns, the Volkswagen emissions scandal and an almost 30 percent plunge in commodities giant Glencore's London-traded stocks.
Catalan 10-year bond yields rose more than 6 basis points to 4.31 percent, having opened at 4.25 percent. Equivalent Spanish yields fell 8 bps to 1.96 percent, outperforming most other euro zone government debt.
The initial market reaction suggested relief that the secessionists won less than 50 percent of the vote, but there was no sense that the independence drive was fading.
Capital Economics analysts said in a note that the "battle is far from over" and that the bond rally could be short-lived.
The separatists still want to declare independence within 18 months, although Spain's constitution does not allow any region to break away, so the prospect remains theoretical.
"The...independence issue is likely to remain a hot topic and will continue to bring some uncertainty on the financial markets and add a risk premium to both Catalan and Spanish bond yields," said Geoffrey Minne, Spain economist at ING.
"However, with less than half of the Catalan population in favour of independence ... it will be difficult to take concrete steps in the direction of independence."
The gap between five-year Spanish and Catalan yields widened to its most in at least two years. Unlike Spanish bonds, the Catalan paper is not eligible for the European Central Bank's trillion euro bond-buying stimulus programme.
Rabobank rate strategists said any further push for independence should be viewed rather as an attempt to "leverage as much in the way of devolutionary concession as possible" from whoever wins a general election in December.
Opinion polls show a majority of Catalans would like to remain within Spain if the region were offered a more favourable tax regime and laws that better protect its language and culture.
Political uncertainty in Spain remains a broader worry for investors, with anti-austerity parties showing strong support before the December election.
"An eventual independence for Catalonia still looks unlikely," said Jan von Gerich, chief strategist at Nordea.
"But as the looming national parliamentary elections keep political uncertainty elevated, Spanish assets are set to remain under pressure." (Additional reporting by Lisa Barrington and Sudip Kar-Gupta in London; Editing by Tom Heneghan and John Stonestreet)