European stock markets rallied Thursday and Milan's FTSE MIB jumped by more than 4% after the European Central Bank announced a much-anticipated bond-buying plan.
In Milan, the FTSE MIB gained 4.31% to reach 15,780 while the FTSE Italia All-Share index jumped by 3.98% to close at 16,631 points, in reaction to the plan announced by ECB President Mario Draghi to ease funding pressures on troubled governments.
The spread between Italian and German bonds narrowed throughout the day as financial markets cheered the bond-buying plan designed to lower borrowing costs for states such as Italy and Spain.
The program provides a "backstop" that will allow the central bank to deal with market distortions driven by fear, Draghi told a news conference.
His words had a quick and dramatic effect on markets. As he spoke, the spread between Italy's 10-year bond and the German Bund - a reflection of investor confidence - fell to 378 basis points with the yield of 5.33%.
By the end of the European trading day, the spread had slid to 370 points, with a yield of 5.26% on 10-year Italian paper. At some of Italy's worst moments in the current sovereign debt crisis, the spread had topped 500 basis points.
Draghi said ECB policy-makers agreed on an unlimited bond-purchase program in order to better manage interest rates in the euro area and provide some protection for the common currency by countering financial-market speculation about the euro's future.
"Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios," he said.
The "appropriate conditions" clause tells governments in troubled countries, including Italy and Spain, that they must request assistance under the program and live with whatever stringent conditions may be imposed.
Buoyed by the new program, Madrid's IBEX jumped by 4.91% to close at 7, 862 points Thursday while London's FTSE-100 index gained 2.11% to 5,777.34 points.
Similarly, Paris's CAC 40 index rose by 3.06% to close at 3,509.88, while Frankfurt's DAX index gained 2.91 to close at 7,167.33.