Stocks post biggest gains since October as risk premium declines

The Spanish stock market on Monday registered big gains while the country's risk premium narrowed on hopes that Tuesday's meeting of the euro-zone's economy and finance ministers would lead to decisive action to resolve the single-currency bloc's sovereign debt crisis.

In line with the rest of Europe, the blue-chip Ibex 35 advanced 4.59 percent, which allowed it to recover the psychologically important 8,000-point mark. That was its biggest daily gain since the accords reached at the European Union summit in October.

The benchmark index eventually closed at 8,119.90 points. The DAX in Frankfurt added 4.5 percent, while the CAC 40 in Paris gained 5.3 percent.

The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent narrowed by 12 basis points to 427 basis points.

Investors are hoping that the Ecofin meeting will agree to reinforce the European Financial Stability Fund to allow it to guarantee some 20 to 30 percent of new debt issues by countries with problems, such as Spain and Italy.

There is also talk about moves toward greater fiscal union, which in turn could allow the European Central Bank to intervene more actively in the euro-zone sovereign debt markets.