Milan, December 19 - European financial markets showed small gains and Milan ended trading 1.1% higher Wednesday amid economic optimism around news from Germany and the United States. Investors remain hopeful that politicians in the U.S. will find some sort of compromise to avoid the so-called "fiscal cliff" of billions of dollars in austerity measures due to kick in at year end. Negotiations have been up and down, yet market players seem optimistic that cooler heads will prevail and a deal will be reached by American lawmakers. Optimism was also fueled Wednesday by an important German business survey that suggested Europe's largest economy seems prepared to recover quickly from the slowdown it has faced. Germany's Ifo institute's business confidence index rose to 102.4 in December from 101.4 in November, beating expectations of a rise to 102. In cautious anticipation, on the Milan Stock Exchange the FTSE Mib gained 1.1% to close at 16,322 points. And the spread between Italy's benchmark 10-year bond and its ultra-safe German counterpart closed lower at 296 basis points. The yield on Italian ten-year bonds was 4.39%, the lowest since November 2010. The shrinking spread and lower yield suggests some stability is returning to bond markets, where the spread indicates investor confidence in the outlook for the Italian economy. In other European markets, Frankfurt's DAX closed up by 0.19% to reach 7,669.50 points, while London's FTSE 100 also closed trading up by 0.43% at 5,961.59 points, Paris's CAC 40 gained 0.44% to close at 3,664.59 points, and Spain's IBEX 35 ended the day 1.01% higher at 8,251.40 points.