* Wall St in late-day rally on report of Italy-China talks
* Bonds end lower as U.S. stock gains curb safe-haven bid
* Euro rebounds from 7-month low, but it remains fragile
* French assurances about banks helps markets hold steady (Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 12 (Reuters) - U.S. stocks staged a late-day rally and the euro rose on Monday, rebounding from a global rout, after news that China might bolster Italy with financial support tempered fears of a Greek debt default and contagion.
The euro, which earlier had slid to a seven-month low against the U.S. dollar, recovered all its losses and gained on a report by the Financial Times, which said Italy had asked China to make "significant" purchases of Italian debt.
U.S. Treasuries widened losses, which had been narrow before the news, while Wall Street stocks erased losses of more than 1 percent to turn higher, further depleting the safe-haven demand for U.S. government debt.
"It shows the Chinese are serious about addressing the stresses in the marketplace," said Robert Van Batenburg, head of equity research at Louis Capital in New York.
Before the news of potential Chinese financial support turned markets around, investors had braced for a possible credit downgrade of France's top banks by Moody's Investors Service.
The euro was last at $1.3678, up 0.2 percent on the day, well off a session trough of $1.34949
Benchmark 10-year U.S. Treasury notes
Sentiment had improved during the session on assurances from France that it could withstand a crisis that has dried up credit in the euro zone and kept jitters high through the summer. For details see: [ID:nP6E7G301A] [nP6E7JV045]
The Dow Jones industrial average <.DJI> closed up 68.99 points, or 0.63 percent, at 11,061.12. The Standard & Poor's 500 Index <.SPX> gained 8.04 points, or 0.70 percent, at 1,162.27. The Nasdaq Composite Index <.IXIC> rose 27.10 points, or 1.10 percent, at 2,495.09.
Investors had sold assets perceived as risky earlier in the session and bought government debt. The yield on benchmark U.S. Treasury 10-year notes briefly slid to the lowest level in at least 60 years at one point.
The governor of the Bank of France, Christian Noyer, later said French banks have no liquidity or solvency problems and that they can withstand any crisis event in Greece.
Mounting fears of a Greek debt default and concerns after the surge in Italian bond yields earlier prompted investors to dump equities across the board in Europe. [ID:nL5E7KC2LZ]
Investors fretted over French bank exposure to Italy after yields at an Italian debt auction hit a three-year high above 4 percent, up from 2.96 percent at a sale a month ago.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares fell 2.7 percent to close at 890.98, after earlier slumping to 883.04, its lowest level since July 2009. The index has lost more than 20 percent in 2011.
Shares of French banks Societe Generale
MSCI's all-country world equity index <.MIWD00000PUS> fell 1.2 percent, paring losses of about 2.2 percent earlier.
"There's a lot of uncertainty with respect to Europe, and so long as that exists there's no drive to take us forward," said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.
Losses had been limited on Nasdaq after wireless chipmaker
Broadcom Corp
Merger activity always cheers investors. In addition, the merger "is a sign that many stocks are undervalued from a historical perspective," said Cangemi.
The U.S. Dollar Index <.DXY> rose 0.04 percent at 77.16.
North Sea Brent, the global benchmark in oil, fell while U.S. crude prices rose as traders sold the spread between the two prices after it widened to a record high last week.
Brent crude oil
Spot gold prices
U.S. December gold futures