Dow jumps 260 points as Italy, Greece fears ease
Stocks ended a volatile week of trading with sharp gains Friday after positive developments in Italy and Greece eased traders' anxiety over the sovereign debt crisis in the euro zone.
The blue-chip Dow Jones Industrial Average (DJI) rallied 260 points, or 2.2 percent, to close at 12,154. The broader S&P 500 (SPX) rose 24 points, or 2 percent, to finish at 1264. The technology focused Nasdaq Composite (COMP) added 54 points, or 2 percent, to close at 2679.
Two consecutive sessions of triple-digit gains allowed the Dow to close 1.4 percent higher for the week and back above the psychologically significant 12,000 level.
As has been the case for days, markets were driven by news coming out of the euro zone and the crises in Italy and Greece. Investors applauded progress both nations made toward forming new governments, as well as the Italian Senate's passage of a crucial austerity budget demanded by the European Union.
More on the debt crisis: Why Italy's Economy Matters to the U.S.
The Italian Senate's approval of steep budget cuts led to a sharp drop in the country's borrowing costs, which was just what jittery investors needed to see. On Wednesday the Dow plunged nearly 390 points after the yield on benchmark Italian bonds hit record highs above 7 percent.
"Italian yields down, stocks up; simple as that," wrote Peter Boockvar, equity strategist at Miller Tabak, in a note to clients.
The passage of austerity measures clears the way for Italian Premier Silvio Berlusconi to step down. Berlusconi was widely considered an obstacle to serious economic reforms. The yield on Italy's benchmark two-year bond dropped 0.43 percentage point to 5.69 percent Friday. That's a sign bond investors think Italy will succeed in managing its massive debt load.
Report: European economy on verge of recession
Greece also gave the markets good news Friday. Lucas Papademos, a former central banker, was sworn in as interim prime minister. Papademos took over a coalition government after a two-week political crisis that jeopardized the country's ability to continue receiving emergency loans.
Back in the U.S., better-than-expected domestic data and corporate profits helped give the markets a lift. A key reading on consumer confidence delivered a pleasant surprise Friday as the Thomson Reuters/University of Michigan consumer sentiment index jumped to 64.2 from 60.2 a month ago. That was well ahead of economists' average forecast for 61.3.
Dow component Walt Disney Co. (DIS) pulled the blue chips higher after the media company's fiscal fourth-quarter earnings and revenue easily topped Wall Street's forecast. Shares in Disney rallied 6 percent on the day.
Also boosting the Dow Industrials was heavy equipment manufacturer Caterpillar (CAT), which gained more than 4 percent on a report the company is in talks to acquire Hong Kong-based ERA Mining Machinery Ltd.
If anxiety over Europe can remain in the background, traders will likely turn their attention to critical U.S. news next week. Inflation will be in focus with reports on producer and consumer prices. Data on industrial production, retail sales and housing starts are also slated for release over the next five trading sessions.
The Associated Press contributed to this report