The Italian bond market rallied on Tuesday as optimism among investors grew in anticipation of further growth measures from European leaders following the EU summit last week.

Pressure on Italian bond spreads -- differences between the yields of bonds that carry different credit ratings -- eased after the bond-support agreement came through during the EU summit last week.

The Italian risk premium, or the spread between Italian 10-year bonds (ITAGER10) and the German benchmark (bund), a key indicator of investors' faith in Italy's ability to shoulder its debts, dropped to 407 points on Tuesday with a yield of 5.6 percent.

The Italian-Germany spread fell by nearly 45 points the day before after EU leaders promised to dole out rescue funds to help euro nations combat soaring borrowing costs.

However, the Milan Bourse, after an upsurge, ticked down 0.7 percent in afternoon trading on Tuesday.

Italian blue-chip firms are now tapping into credit markets following the boost from the EU deal. Italy's largest retail bank, Intesa Sanpaola, and national insurer Generali were the first companies to test the waters with two large bond issues. Intesa's issue of bonds with €1 billion ($1.3 billion) was the first biggest unsecured bank issue in the euro zone since the heat of the sovereign debt crisis, which crippled Italian and Spanish markets at the end of March this year.

Non-financial companies are also scrambling to access the bond market, sources told Reuters. Italian gas transport company Snam, which intends to redistribute the liabilities it will assume after its split from its parent oil-and-gas concern Eni, met investors last week, scouting for opportunities of a bond issue before the start of autumn.

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