Spanish stocks have dropped sharply today following violent outbreaks in Catalonia yesterday during a vote over independence.
Spain's Ibex slumped 1.6 per cent in afternoon trading led by falls among Spanish banks. Banco de Sabadell and Caixabank, which are both based in Catalonia, fell more than six and four per cent, respectively.
The euro was also hit, falling 0.47 per cent against the US dollar.
Hundreds of people were injured by police with batons and rubber bullets who tried to prevent voting at yesterday's referendum.
According to regional officials, 90 per cent of voters were in favour of independence, but national authorities say the referendum was illegal.
"There’s a high chance that Spain may be headed towards a new crisis, especially if Catalonia’s President, Carles Puigdemont, declares independence as he has promised to do in the next 48 hours. This will lead to more violence and probably an intervention from EU leaders, who will come under pressure to take action," said Hussein Sayed, chief market strategist at FXTM.
"Traders should be monitoring spreads between Spanish and German bond yields in the next couple of days. If spreads widen significantly, investors will become seriously worried about the outcome of the referendum vote, leading to a further selloff in the euro, but this is not evident yet."
Spanish government bond yields rose seven basis points to 1.69 per cent in early trading today, which was their highest level since July.
The European Commission has called on Spain to open a dialogue with Catalonia. Brussels said violence was not the solution but backed Spanish Prime Minister Mariano Rajoy's leadership, calling the independence vote an "internal matter".