Stocks rocketed to their biggest gain in a year and bond prices fell Monday after a nearly $1 trillion plan to contain Europe's debt crisis reassured investors.
The Dow Jones industrial average rose about 405 points to its biggest advance since March 2009. Broader U.S. indexes outpaced the Dow's 3.9 percent rise. Gains in several European markets topped 9 percent.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Friday. The drop in demand for safety holdings like Treasurys signaled that investors are less afraid that Europe's debt problems will endanger a global recovery.
The European Union and the International Monetary Fund agreed to create a nearly $1 trillion rescue fund to support European nations burdened by heavy debt. Analysts caution that countries like Greece will still need to make painful spending cuts in the coming years and that the debt problems won't disappear any time soon. Nonetheless, the size of Europe's response was far greater than most analysts had expected, and signaled that policymakers are ready to take significant measures to shore up the euro and keep Europe's debt woes from spreading.
"The market is breathing a huge sigh of relief that the EU has taken aggressive steps," said Alan Gayle, senior investment strategist at RidgeWorth Investments in Richmond, Va.
Investors drew reassurance after the Federal Reserve and other central banks stepped up with financial support to corral what analysts warned was a growing financial crisis.
The Fed restarted a program from 2008 to ship dollars overseas through the foreign central banks. Those central banks can then lend the dollars out to banks in their home countries. The Bank of England, the European Central Bank, the Bank of Canada, the Swiss National Bank and the Bank of Japan are also involved in the dollar-swap effort.
The advance in U.S. stocks was broad. Bank of America Corp., Caterpillar Inc. and General Electric Co. led the Dow with gains of more than 6 percent. All 30 stocks that make up the Dow ended higher for the first time since Nov. 5.
Markets around the world plummeted last week after fears grew that Greece's debt problems would spread to other struggling European economies like Spain, Portugal and Italy. The Dow slid 5.7 percent last week in its worst drop since the depths of the financial crisis in October 2008. On Thursday alone, the Dow was down nearly 1,000 points late in the day before recovering much of its losses.
Triple-digit Dow moves have again become the norm. The latest swings are reminders of the big swings that occurred during the credit crisis in late 2008 and early 2009.
The Dow rose 404.71, or 3.9 percent, to 10,785.14. At its peak, the Dow was up nearly 455 points. The climb came after four straight days of losses and was the biggest advance since March 2009, when the market was bouncing off its lowest levels in 12 years.
The Dow is still down 420 points, or 3.8 percent, from its 2010 closing high of 11,205 on April 26.
The Standard & Poor's 500 index rose 48.85, or 4.4 percent, to 1,159.73. The Nasdaq composite index rose 109.03, or 4.8 percent, to 2,374.67.
For much of 2010, major stock indexes had been climbing steadily on signs the U.S. economy was recovering. Last week's plunge had erased the market's gains for the year, but the jump on Monday put major indices back in the black for 2010.
Investors had feared that the euro, which is used by 16 countries, would continue to slide if Greece didn't get more help.
"Europe has unequivocally said, 'We will defend the euro's integrity,'" said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y.
A drop in the dollar boosted prices of commodities, which become more attractive to buyers outside the U.S. when the dollar is weak.
The Chicago Board Options Exchange's Volatility Index fell after spiking last week. The index, which is known as the market's fear gauge, last week jumped to about 41 from 20. That meant more investors were expecting big drops in the market. The VIX slid 30 percent Monday to about 29.
Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, said the market's bounce reflects short-covering. That occurs when investors are forced to buy stock after having earlier sold borrowed shares in a bet that the market would fall. That rush to cover ill-timed bets can hasten the market's climb.
"You don't solve the problem of debt by printing new money," Smith said. "Whatever euphoric action we're seeing, there is going to be a need for EU banks to raise more capital."
As investors jump back into riskier assets like stocks on Monday, U.S. bond prices tumbled. The price of the 10-year note fell by about a point, or $1 per $100.
Gold also fell, losing $9.60 to $1,200.80 an ounce. Treasurys and gold surged late last week as investors piled into safe assets.
Crude oil rose $1.69 to $76.80 per barrel on the New York Mercantile Exchange.
Bank of America rose $1.12, or 6.9 percent, to $17.30, while Caterpillar rose $4.59, or 7.4 percent, to $66.69. GE rose $1.16, or 6.9 percent, to $18.04.
At the New York Stock Exchange, 2,992 shares rose while only 158 fell. Trading volume came to 1.9 billion shares compared with 2.4 billion Friday.
Britain's FTSE 100 rose 5.2 percent, Germany's DAX index rose 5.3 percent, and France's CAC-40 climbed 9.7 percent. In Greece, the main stock index rose 9.1 percent. Portugal's PSI 20 rose 10.7 percent. In Asia, Japan's Nikkei stock average rose 1.6 percent.
AP Business Writers Consella A. Lee and Stephen Bernard contributed reporting.