Signs that a widespread European debt crisis could be averted helped send stocks up sharply Monday.
French banks agreed to accept slower repayment of Greece's debt. That would give Greece more time to meet its other immediate financial obligations. French bondholders hold about $21.3 billion in Greek government debt. Greek lawmakers are also debating austerity measures that must pass before the country can receive another financial rescue package to help avoid default.
The U.S. government, meanwhile, said that spending by consumers decreased in May, after adjusting for inflation. April's figures were also revised downward, revealing the first decline since January 2010. Consumer spending accounts for 70 percent of economic activity.
Gas prices nearing $4 per gallon in late April and early May curtailed spending on retail goods such as televisions and clothes. Since then, gas prices have fallen to a national average of $3.57 per gallon. Oil prices have declined steeply over the last few weeks, which should eventually translate into even lower pump prices. Lower gas prices could help boost consumer spending in other areas in the coming months.
According to preliminary calculations, the Dow Jones industrial average rose 108.98 points, or .91 percent, to 12,043.56. The Standard & Poor's 500 index rose 11.65, or .92 percent, to 1,280.10. The Nasdaq composite index rose 35.39, or 1.33 percent, to 2,688.28.
Analysts said the rally was stronger than the economic news would suggest in part because many traders invest when indices hit certain pre-determined price levels.
In this case, the key number is 1,257 — the S&P's break-even figure for the year, said Todd Salamone, director of research at Schaeffer's Investment Research. The S&P approached that level in March and again earlier this month. Both times, the market rallied as so-called technical traders poured into the market.
The Monday-morning rally was driven by "a combination of trading on that (break-even) level and a catalyst, the situation in Europe," Salamone said. "Whether we sustain it is another question."
Stocks rose broadly. All 10 industry groups in the S&P were higher, with financials, information technology and retail stocks showing the strongest gains.
Shares of electronics maker Molex Inc. fell 4 percent, the most in the S&P, after analysts with Ticonderoga Securities downgraded the stock to "sell" from "neutral." They said the slow economy has hurt demand for tech gadgets such as the smart phones that Molex manufactures.
After the market closes, athletic apparel maker Nike Inc. will report on its financial performance in the fiscal fourth quarter.
Broad markets have now fallen for seven of the past eight weeks as traders received a string of dismal economic data showing that the recovery is slowing. The Dow sank 1 percent on Friday, and the S&P 1.2 percent. The Nasdaq lost 1.3 percent.
The S&P and the Dow both are down 7 percent since they hit their highs for the year on April 29. However, the Dow is still up 4 percent for the year, and the S&P is up 2 percent.
Europe's debt problems have weighed on global markets in recent weeks, with major indices reacting daily to the news about Greece's progress toward a second bailout loan package. If Greece defaults, the fear is, investors will lose faith in the financial strength of other countries that have borrowed heavily or hold billions in Greek debt. That could lead to a credit crunch — when banks virtually stopped lending to one another — similar to what sparked the broader financial crisis after the investment bank Lehman Brothers collapsed in 2008.