By Kit Rees
LONDON (Reuters) - Spanish stocks outperformed a lackluster European market on Wednesday as Catalonia's leader stopped short of declaring formal independence from Spain, allaying fears over a constitutional crisis in the region and boosting shares in banks.
The pan-European STOXX 600 index was flat in percentage terms by 0828 GMT, while Spain's benchmark IBEX was the standout regional performer with a gain of 1.5 percent.
Spanish equities have lagged their European peers in October, having shed more than 1 percent so far this month, as concerns rose over tensions in the region following Catalonia's independence referendum on Oct. 1.
Worries eased after Catalonia's leader Carles Puigdemont made only a symbolic declaration on Tuesday, claiming a mandate to launch secession but suspending any formal steps to that end.
"There is a perception in the market that, while this is a difficult political time for Spain, that actually it will somehow muddle through," Laith Khalaf, senior analyst at Hargreaves Lansdown (LON:HRGV), said.
"There has been some market reaction but it has been quite limited on the basis that I don't think the market expects Catalonia to ultimately separate, or at least not in a disruptive way," Khalaf added.
Spain's IBEX is still up more than 10 percent so far this year, compared with an 8 percent rise for the STOXX 600.
Shares in Spanish banks Sabadell and Caixabank, which have moved their legal bases from Catalonia to other parts of Spain, rose 2.6 percent and 2.1 percent respectively, while peers BBVA (MC:BBVA) and Santander (MC:SAN) gained 2 percent and 1.6 percent.
Spanish lenders led the euro zone banking index, which advanced 0.5 percent.
"This episode could serve as a deterrent for other independence movements in Spain and Europe rather than lead to a rise in break-up risks. Markets rightly maintain their calm," David A. Meier, economist at Julius Baer, said in a note, referring to the events in Catalonia.
Falls among mining stocks and oil and gas firms weighed on the broader European market, as investors awaited U.S. fuel inventory data.
Elsewhere some early results were in focus, with shares in Mondi (LON:MNDI) dropping 8.7 percent to the bottom of the STOXX after the paper and packaging manufacturer cut its full-year guidance.
Estimates point to European third-quarter earnings growing 5.3 percent from the same period last year, which would be an increase of 2.3 percent excluding the energy sector, according to Thomson Reuters I/B/E/S data.
Shares in German food-processing machinery firm GEA Group were the top gainers, however, surging 6.3 percent after hedge fund Elliott revealed a stake in the company.
Investors were also looking ahead to the release of minutes from the U.S. Federal Reserve's September policy meeting for any clues as to the timing of future rate hikes.