Stock markets rally on hopes of solution for euro-zone crisis

Spain and the rest of the European stock markets on Tuesday posted big gains as investors warmed to an apparent growing sense of urgency among the continent's leaders in coming up with a plan capable of tackling the euro-zone debt crisis.

That plan is likely to involve beefing up the European Financial Stability Facility (EFSF), set up to help out euro-zone countries weighed down by debt. The European Central Bank is also expected to reintroduce measures to boost liquidity and help out the banks, while investors are coming around to the idea that an ECB rate cut is almost inevitable.

The Spanish blue-chip Ibex 35 closed up 4.03 percent at 8,531.90 points.

"We are rallying based on the plan as it looks like politicians are beginning to take things seriously," Reuters quoted David Coombs, a fund manager at Rathbone Brothers, as saying. "But it is a plan that has not been agreed yet and I am not sure it is all deliverable."

The Ibex 35 has now recovered nine percent in the past three sessions. As a result, it trimmed its losses for the start of the year to under 14 percent.

There was also a big improvement in Spain's risk premium. The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent narrowed 24 basis points to 309.

In the rest of Europe, the DAX in Frankfurt added 5.3 percent, while the CAC 40 in Paris was up 5.7 percent. The PSI-20 in Lisbon rose by just under three percent.