LONDON: Madrid stocks rallied on Wednesday (Oct 11) after Catalan leader Carles Puigdemont called for independence to be suspended to allow for talks with the Spanish government.
The Spanish capital's benchmark IBEX 35 index of top companies jumped 1.4 per cent, and the euro pushed higher against the dollar.
Other main European markets stabilised as dealers shrugged off news of Tokyo's record run higher. Paris and London edged down, while Frankfurt drifted higher.
"The stalemate between the region and the Spanish government is still ongoing, but the news that the region isn't rushing for the exit has lifted investor confidence," said analyst David Madden at CMC Markets UK.
"We don't have any clarity as to how the situation will develop from here ... Dealers may become nervous again when the separatists try and pursue their agenda, but at the moment normality has returned to the Spanish market," he added.
Madrid vowed to examine "all options" on Wednesday in a crisis cabinet meeting hours after Catalonia's leaders said they had a mandate to declare independence but put it on hold, plunging the country into unknown territory.
Rajoy has vowed to do everything in his power to prevent Catalan independence following a banned referendum in the region, which remains deeply divided over splitting from Spain.
He threatened on Wednesday to suspend Catalonia's regional autonomy after its leader said there was a mandate to split from Madrid, but his government also agreed to study reforming the constitution to try to end the crisis in Catalonia.
"The lack of any drama has meant that, outside the Ibex, the market reaction has been limited," said Chris Beauchamp, chief market analyst at online trading firm IG.
TOKYO SURPASSES 1996 PEAK
In Asia, Japan's main stock index finished at its highest in more than two decades on Wednesday, leading broad gains across the region after yet another record Wall Street close Tuesday.
Tokyo's Nikkei 225 index finished the day 0.3 per cent higher at 20,881.27 points - its best finish since December 1996.
Japan's corporates have generated bumper profits and the economy is enjoying its best growth spurt for years, while equities have also been supported by a global rally.
Several other markets in the region are also sitting at multi-year highs, helped by hopes that US President Donald Trump's proposed big-spending and tax-cutting promises will be implemented and fire up the world economy.
The Nikkei has rebounded from below the 15,000 mark in June last year after Britain's vote to exit the EU pummelled world markets.
Wall Street's main stock indices marked time on Wednesday ahead of Federal Reserve meeting minutes that will be studied for additional clues about the likelihood of a December interest rate hike.
The Fed has signaled it expects to lift rates again in December, while emphasising that it will scrutinize evolving economic data before making a final decision.
The earnings season gets into gear Thursday when several big banks publish their quarterly results.
Oil prices dipped on Wednesday, giving up some of the solid gains made the day before following news that Saudi Arabia planned to cut exports in November, although OPEC raised its forecast for oil demand once again.
Key figures around 2100 GMT:
New York - DOW: UP 0.2 per cent at 22,872.89 (close)
New York - S&P 500: UP 0.2 per cent at 2,555.24 (close)
New York - Nasdaq: UP 0.3 per cent at 6,603.55 (close)
Madrid - IBEX 35: UP 1.4 per cent at 10,288.40
London - FTSE 100: DOWN 0.1 per cent at 7,533.81 (close)
Frankfurt - DAX 30: UP 0.2 at 12,970.68 (close)
Paris - CAC 40: DOWN less than 0.1 per cent at 5,362.41 (close)
EURO STOXX 50: UP 0.2 per cent at 3,607.42
Tokyo - Nikkei 225: UP 0.3 per cent at 20,881.27 (close)
Hong Kong - Hang Seng: DOWN 0.4 per cent at 28,389.57 (close)
Shanghai - Composite: UP 0.2 per cent at 3,388.28 (close)
Euro/dollar: UP at US$1.1864 from US$1.1809 at 2100 GMT
Pound/dollar: UP US$1.3225 from US$1.3205
Dollar/yen: UP at 112.50 yen from 112.45 yen
Oil - Brent North Sea: UP 33 cents at US$56.94 per barrel
Oil - West Texas Intermediate: UP 38 cents at US$51.30 per barrel