Stocks End Up 3% on EU Deal, Dow Above 12,000

Stocks slipped from their best levels Thursday, but still closed sharply higher, boosted by an agreement reached by EU leaders on a plan to resolve the region's sovereign debt crisis and after a handful of encouraging economic and earnings reports.

All major average indexes entered positive territory for the year.

The Dow Jones Industrial Average surged 339.51 points, or 2.86 percent, to finish at 12,208.55, led by BofA and Alcoa .

The blue-chip closed above the psychologically-important 12,000 level for the first time since August and is on track for its best month since Jan. 1987.

The S&P 500 rocketed 42.59 points, or 3.43 percent, to end at 1,284.59. The Nasdaq soared 87.96 points, or 3.32 percent, to close at 2,738.63. The S&P and Nadaq are on pace for their best month since Oct. 1974 and Nov. 2001, respectively.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, plunged almost 15 percent to finish near 25.

All 10 S&P sectors ended firmly in the black, led by financials and materials.

Global markets soared in response to the euro zone leaders' deal with private banks and insurersfor them to accept a 50 percent loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden and try to contain the region's debt crisis.

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“This is an excellent step in the right direction,” said Phil Orlando, Chief Equity Market Strategist at Federated Investors. “The fact that things are moving in the right direction with acceptable ranges is a positive development, so whether or not this problem gets fixed is a secondary problem…the primary point is that euro zone problems are off the table for now.”

Financials led the rally, with Morgan Stanley climbing more than 15 percent. Citigroup and Goldman Sachs soared almost 10 percent. European shares closed sharply higher, with EU banks posting double-digit percentage gains.

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In earnings news, Procter & Gamble edged higher even after household products posted profit that dipped slightly, but met expectations.

And fellow Dow component ExxonMobil gained after the oil giant reported a profit that soared more than 40 percent, thanks to gains in oil prices and higher refining margins.

Dow Chemical jumped even after the chemical maker's profit narrowly missed estimates.

Meanwhile, Avon Products slumped almost 20 percent to lead the S&P 500 laggards after the firm posted lower-than-expected sales and added it is reassessing its long-term strategy. Adding to woes, the SEC subpoenaed the company over its contact with analysts, and the company is under a formal investigation over whether it failed to comply with bribery laws in China and elsewhere.

Visa rose after the credit-card provider reported earnings that beat expectations, but revenue fell slightly short.

AMD , Motorola Mobility , Baidu and Electronic Arts are poised to post earnings after-the-bell tonight.

And Research In Motion faces a rash of consumer lawsuits following its recent four-day BlackBerry outage. The stock was under pressure in the previous session following news it had delayed its Playbook 2.0 operating system until February.

Treasurys extended their lossesafter the government auctioned $29 billion in 7-year notes at a high yield of 1.791 percent and bid-to-cover of 2.59.

On the economic front, the U.S. GDP rose at a 2.5 percent annual rate in the third quarter, its fastest pace in a year, according to the Commerce Department in its first estimate. That was a big improvement from the 1.3 percent rate in the previous quarter and met matched economists' estimates.

And weekly jobless claims slipped last week by 2,000 to a seasonally adjusted 402,000, according to the Labor Department. Economists had forecast claims falling to 400,000 from the previously reported 403,000, according to a Reuters poll.

“Right now, things are pretty much in line and I’m not sure if that’s enough to sustain things,” said Stephen Carl, head equity trader at The Williams Capital Group.

Meanwhile, pending home sales declined 4.6 percent to 84.5 in September, falling for a third consecutive month, according to the National Association of Realtors Pending Home Sales Index. Economists were expecting sales to edge up 0.1 percent, according to a Reuters survey.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—

On Tap This Week:

FRIDAY: Personal income & outlays, employment cost index, consumer sentiment; Earnings from Chevron and Merck

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