Monday 24 October 2016 11:05 am

Spanish stock market surges as political deadlock set to end

Financial markets in Spain have rallied this morning on news that the country is set to exit more than 300 days of political gridlock.

After yesterday's landmark concession by the socialist PSOE party, which paved the way for centre-right Prime Minister Mariano Rajoy to form a new minority government, the Ibex 35, Spain's bluechip shares index, leapt 1.5 per cent at the open.

The climb took the index to 9,234 points by mid-morning, its highest level in six months.

Banks led the charge higher, with BBVA up 2.3 per cent. Other big lenders including La Caixa, Banco de Sabadell and Bankia were all up by more than two per cent.

Santander, Spain's largest bank, was also trading up 2.9 per cent on its Madrid and London listings this morning. The enthusiasm also spread across the continent with the Euro Stoxx banking index up 2.3 per cent.

Despite hitting a six-month high, Deutsche Bank's Marco Stringa said he "expects only a subdued positive reaction from markets, given that the dilemma of whether a third election could be avoided had already become a less and less pressing concern for markets".

Defying the political impasse, which has gripped Spain since a general election last December failed to return a decisive result, Spain's economic recovery has picked up this year.

Had PSOE not agreed to step aside and let Rajoy form a new government by the 31 October, Spain would have been forced to return to the polls for the third time in 12 months following a ballot in June which strengthened Rajor's PP outfit, but could not end the deadlock.