Stock index futures rose on Tuesday, indicating equities will rebound from declines in the prior session as borrowing costs in Spain fell and worries about the euro zone's debt crisis eased.

Short-term financing costs for struggling Spain more than halved as banks lapped up debt at an auction, with much of the purchasing power said to come from cut-rate loans from the European Central Bank.

U.S. banks, plagued by concerns about exposure to the euro zone crisis, dragged the U.S. stocks lower Monday, with losses accelerating late in the session. Bank of America Corp's stock price fell below $5 for the first time in nearly three years.

Bank of America shares were up 1.9 percent to $5.08 and Citigroup Inc added 1.5 percent to $25.18 in premarket trade.

Stocks continue to be highly sensitive to headlines and fluctuating bond prices out of the euro zone, sparking high volatility. The market will be prone to large swings this week on expected low volume due to the upcoming Christmas holiday.

The first-ever offer of three-year loans to banks from the European Central Bank on Wednesday is expected to be a strong indicator of whether debt-loaded countries get some relief or endure more pain.

The Munich-based Ifo think-tank said German business sentiment rose sharply in December, defying expectations it would decline and underscoring the resilience of Europe's biggest economy.

S&P 500 futures climbed 9.8 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 94 points, and Nasdaq 100 futures added 18.5 point.

On the macroeconomic front, investors awaited housing starts and permits data for November. Economists in a Reuters survey forecast housing starts at a 635,000 annualized rate versus 628,000 in October. The data is due at 8:30 a.m. EST.

AT&T Inc dropped its controversial bid for T-Mobile USA, the Deutsche Telekom unit, bowing to fierce regulatory opposition.

After the close Monday, business software maker Red Hat Inc forecast fourth-quarter revenue below expectations, hurt by a weaker euro.

Sempra Energy said it expects to exceed its 2011 profit forecast.

(Reporting By Chuck Mikolajczak; editing by Jeffrey Benkoe)