European stock markets rallied and bond spreads narrowed on Tuesday, as Wall Street flexed muscle and German representatives expressed openness toward extending a line of credit to Spain through the European Stability Mechanism. Interest rates on Italian bonds dipped so low, Italy\'s public debt chief declared them \"sustainable\" in a television interview. Maria Cannata, treasury director-general of public debt, told Sky TG24 the current interest rate of 4.9% was \"sustainable\" and \"historically low\", and added that the Italian spread \"could go down to 200 points\". The yield on the secondary market for Italian 10-year bonds dipped to 4.89% during the day - a low last seen in March - but closed at 4.93%, down from 4.98% on Monday. The spread between interest rates on Italian and German bonds slid 11 basis points on Tuesday, to close at 339. The spread is an important gauge of investor faith in Italy\'s ability to pay down its debt. Another litmus test for Italy was looking up on Tuesday. The Italian government\'s latest bond placement is going well. Italian bond orders gathered pace on Tuesday, with 44,370 orders placed worth 2.59 billion euros, up from 40,929 orders worth 2.48 billion euros placed Monday, the Italian bourse announced in a note. The bond placements close Thursday. News of political support from Germany for a credit line also helped narrow the spread between Spanish bonds and the German benchmark, which closed at 426 basis points, down eight points on Monday. The yield on Spanish bonds was 5.8%. Madrid\'s stock exchange got quite the booster shot, with the Ibex index gaining 3.41% to close at 7940.20 points. Milan\'s FTSE MIB index also rose markedly, climbing 2.53% to close just shy of 16,000 points at 15,985. Italian banks performed particularly well reporting results that outstripped Goldman Sachs\' expectations. Unicredit rose 4.56%. Intesa Sanpaolo rose 4.34%. Bper rallied 7.83%. The Italian media company Mediaset soared for the second day - up 7.25% - on rumors of an alliance with Al Jazeera or another foreign media company. Frankfurt\'s DAX index climbed 1.58%; Paris\'s CAC 40 index was up 2.36%; and London\'s FTSE-100 rose 1.12%. Even Athens\' Athex index gained 1.78% despite a breakdown in negotiations between the troika - EU, ECB and IMF - and the Greek government - with an EU summit in Brussels looming Thursday.