Signs that the economy is indeed strengthening gave investors a surge of optimism and sent stocks sharply higher.
The Dow Jones industrials soared almost 170 points Tuesday on upbeat earnings reports and corporate deals. Investors who have been anxious in recent weeks about economic problems overseas were able to put aside their concerns for the time being. They focused instead on the domestic economy.
The dollar fell as investors felt less of a need to stash their money in safer investments. Oil, gold and other commodities joined stocks as the beneficiaries of the market's renewed confidence. And the stocks of energy and materials producers were among the day's big winners.
European markets also rose following new plans by European Union leaders to push Greece to get its budget under control. European officials gave Greece one month to prove it can cut its deficits. Debt problems in European countries including Greece, Portugal and Spain have been a major factor behind weakness in global stock markets in recent weeks.
A strong earnings report from Barclays, a major European bank, also gave the market some relief. European banks have been slower to recover than their U.S. counterparts, and investors saw the bounceback at Barclays as an encouraging sign.
In the U.S., Kraft Foods Inc. and apparel retailer Abercrombie & Fitch reported earnings that beat expectations, while drugmaker Merck & Co. said profits jumped after the company bought its longtime partner Schering-Plough Corp.
Earnings reports over the past month have mostly come in better than expected, but problems in the global economy have overshadowed that good news and pushed the market lower.
"Earnings have been good, but pushed to the back seat," behind Europe's problems, said Alan B. Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio. The strong reports Tuesday "superseded some of these worries."
Meanwhile a bold acquisition move by the nation's largest mall owner raised hopes that businesses are feeling more confident about the economy.
Simon Property Group has offered to acquire its ailing rival, General Growth Properties, for $10 billion. General Growth, the No. 2 mall operator, filed for bankruptcy protection last year.
The Dow rose 169.67, or 1.7 percent, to 10,268.81. The Standard & Poor's 500 index rose 19.36, or 1.8 percent, to 1,094.87, while the Nasdaq composite index rose 30.66, or 1.4 percent, to 2,214.19.
About five stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 4.2 billion shares, down from 4.5 billion Friday.
In other deal news, JPMorgan Chase & Co. said it was buying RBS Sempra Commodities' global oil, global metals and European power and gas assets in a deal worth about $1.7 billion. The move nearly doubles JPMorgan's corporate client base for commodities.
Economic reports throughout the holiday-shortened week will also provide insight into the economy. Market were closed Monday for President's Day.
A report on manufacturing in the New York area was stronger than expected. The Empire State manufacturing index rose to 24.91 this month, compared with a forecast of 18, according to economists polled by Thomson Reuters. The index was 15.92 last month.
Reports on housing starts, jobless claims and inflation are due out later this week.
Merck rose 74 cents, or 2 percent, to $37.66. In addition to its earnings results Merck also announced details of the combined company's restructuring plans, the first phase of which expected to bring annual savings of up to $3 billion in 2012.
Barclays' New York-listed shares jumped $2.35, or 13 percent, to $19.03.
Simon Property rose $2.82 or 3.9 percent to $74.82 after announcing its hostile offer for General Growth. General Growth's best known centers include the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.
Simon Property's bold move "sends a signal that the economy might be doing better," said Giri Cherukuri, a portfolio manager and head trader at OakBrook Investments in Lisle, Ill. The Simon Property deal is especially positive because it shows mall operators are upbeat about the retail industry and employment.
Among energy companies, Exxon Mobil Corp. rose $1.48, or 2.3 percent, to $66.28. Occidental Petroleum Corp. rose $1.38, or 1.7 percent, to $81.18.
Aluminum producer Alcoa Inc. rose 46 cents, or 3.5 percent, to $13.74. DuPont rose 46 cents, or 1.4 percent, to $32.74.
Bond prices edged higher as concerns about the Greek debt crisis began to wane. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.67 percent from 3.70 percent late Friday.
The dollar fell. Crude oil jumped $2.88 or 4 percent to settle at $77.01 a barrel.
The Russell 2000 index of smaller companies rose 10.12, or 1.7 percent, to 620.84.
Overseas, Britain's FTSE 100 rose 1.5 percent, Germany's DAX index gained 1.7 percent, and France's CAC-40 rose 1.7 percent. Japan's Nikkei stock average rose 0.2 percent.