European debt deal lifts Dow by almost 340 points

Associated Press

NEW YORK

An agreement to contain the European debt crisis electrified the stock market Thursday, driving the Dow Jones Industrial average up nearly 340 points and putting the Standard & Poor’s 500 index on track for its best month since 1974.

Investors were relieved after European leaders crafted a deal to slash Greece’s debt load and prevent the crisis there from engulfing larger countries such as Italy. The package is aimed at preventing another financial disaster like the one that happened in September 2008 after the collapse of Lehman Brothers.

But some analysts cautioned that Europe’s problems remained unsolved.

“The market keeps on thinking that it’s put Europe’s problems to bed, but it’s like putting a 3-year- old to bed: You might put it there but it won’t stay there,” said David Kelly, chief market strategist at J.P. Morgan Funds.

Kelly said Europe’s debt problems will remain an issue until the economies of struggling nations such as Greece and Portugal grow again.

Commodities and Treasury yields soared as investors took on more risk. The euro rose sharply against the dollar.

Stronger U.S. economic growth and corporate earnings also contributed to the surge. The government reported that the American economy grew at a 2.5 percent annual rate from July through September on stronger consumer spending and business investment. That was nearly double the 1.3 percent growth in the previous quarter.

Banks agreed to take 50 percent losses on the Greek bonds they hold. Europe also will strengthen a financial-rescue fund to protect the region’s banks and other struggling European countries such as Italy and Portugal.

“This seems to set aside the worries that there would be a massive contagion over there that would have brought everything down with it,” said Mark Lamkin, head of Lamkin Wealth Management.

The Dow Jones industrial average soared 339.51 points, or 2.9 percent, to 12,208.55.

That was its largest jump since Aug. 11, when it rose 423 points.

All 30 stocks in the Dow rose, led by Bank of America Corp. with a 9.6 percent gain. It was the first time the Dow closed above 12,000 since Aug. 1.