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UPDATE 2-Catalan reprieve and rating reward lift Spanish and Italian bonds

* Election poll puts Catalan secessionists behind

* Italy receives unexpected rating upgrade from S&P

* Portuguese bond down 9 bps, yields lowest in 2-1/2 years (Updates prices)

LONDON, Oct 30 (Reuters) - Southern European government borrowing costs fell on Monday after an opinion poll suggested separatists in Spain's Catalonia region may lose a December election.

Italy was also a factor as it received its first rating upgrade from Standard & Poor's in at least three decades.

The poll, which showed a small lead for parties opposing a split of Catalonia from Spain, was the first since Madrid called the Dec. 21 vote last Friday after dismissing Catalonia's regional government and dissolving its parliament.

On Sunday, hundreds of thousands of supporters of a unified Spain filled Barcelona's streets in one of the biggest shows of force by those who have largely looked on as regional leaders pushed for independence.

Italy on Friday received an unexpected upgrade in its debt rating from BBB- to BBB, with S&P Global citing a strengthening economic outlook, growing investment, a steady rise in employment and improvements in the debt-laden banking sector.

"We were expecting a positive outlook by S&P but they went further by upgrading the rating to Triple B, so thats clearly one positive going into today's auction," ommerzbank's head of rates research, Christoph Rieger, said.

Italy elicited strong demand when it sold five- and 10-year debt in an auction late morning.

Normally, yields rise during an auction as investors make space for the new supply, but Italian 10-year yields fell 5 bps to 1.89 percent, close to their lowest level this year relative to Germany, the bloc's benchmark borrower.

Spanish bonds were also a strong performer on the day, with 10-year yields down as much as 7 bps at 1.52 percent , recovering some of the ground lost in recent weeks as the political crisis in Catalonia deepened.

Portuguese bonds, another so-called peripheral market that tends to trade in line with Spanish and Italian peers, were also caught up in the rally. Portuguese 10-year yields were set for the biggest one-day fall in six weeks, down 9 basis points on the day, at their lowest level in around 2-1/2 years .

The European Central Bank's decision last week to extend its asset purchase programme to at least September 2018, albeit at a slower pace, has also encouraged investors back into riskier debt and stock markets.

Spain's stock market gained 1.3 percent on Monday, while Italy's main index was up 0.4 percent.

The euro was up 0.3 percent against the dollar at $1.1642 , recovering from a three-month low struck on Friday. (Reporting by John Geddie and Fanny Potkin; Editing by Mark Heinrich)