NEW YORK (CNNMoney.com) -- Stocks rallied Monday after European officials approved a nearly $1 trillion rescue plan to contain the debt crisis in troubled nations and stabilize the euro.
The Dow Jones industrial average (INDU) gained 405 points, or 3.9%, the average's biggest one-day point and percentage gain since March 23, 2009.
The S&P 500 index (SPX) surged 49 points, or 4.4%. It was also the best day on a point and percentage basis since March 23, 2009.
The Nasdaq composite (COMP) rallied 109 points, or 4.8%. It was the Nasdaq's best day on a point basis since Oct. 28, 2008, and on a percentage basis since March 23, 2009.
Markets around the globe advanced on the plan as investors breathed a sigh of relief that aggressive action was being taken after months of mounting concern. The euro gained versus the dollar, and the dollar gained against the yen.
Treasury prices slipped, boosting the corresponding yields, as investors pulled money out of the safe-haven investment and put it into riskier assets, such as stocks.
U.S. investors were reacting to the size and scope of the rescue, said Ron Kiddoo, chief investment officer at Cozad Asset Management.
"It shows Europe is willing to do something fairly dramatic to address these problems," he said. "It doesn't solve everything, but it's a good step."
A big selloff last week left all three major indexes in negative territory for the year and the Nasdaq in a correction -- defined as a decline of at least 10% off the recent highs. The Nasdaq's decline was 10.5%. The Dow had fallen 7.4% and the S&P 500 8.5% from the late April highs.
Stocks had been down on worries about debt-plagued Greece weakening other troubled European nations, including Spain and Portugal, and ultimately destabilizing the euro.
But the selling was exacerbated last Thursday after computer trading on more than 300 stocks sparked a massive selloff. The Dow tumbled 998.50 points, the index's biggest loss ever on an intraday basis, before it recovered about two-thirds of the drop. On Friday, trades of 296 stocks were cancelled.
In the aftermath of that selloff, the Securities and Exchange Commission and the major stock exchanges all agreed Monday on the basic framework to strengthen "circuit breakers" and methods for handling erroneous trades.
The selling that plagued the market for a week or two prior to the Thursday battering started to wear out, setting markets up for a bounce, said Gary Webb, CEO at Webb Financial Group.
But with Thursday's so-called "flash crash" and continued concern about European debt, the major indexes finished the week down for the year to date. Having gotten past that, stocks could be set up for a decent bounce for a few weeks, Webb said.
"I think investors around the world are reacting well to this bailout because they see that our bailout worked," he said, referring to the $787 billion U.S. stimulus plan approved last year. "There's a price to be paid down the line, but the fact that it did stabilize our markets is reassuring them that the EU bailout will stabilize the euro."
Volatility: Last week the CBOE Volatility index, or the VIX (VIX), Wall Street's fear gauge, rallied to 13-month highs as investors priced in a bigger retreat. But on Monday, the VIX slumped 12 points, or almost 30%, to end at 28.96 as investor anxiety dissipated.
"The news out of Europe is positive, but I'm not sure how healthy today's move is," said Paul Brigandi, vice president of trading at Direxion Funds. "It shows we're back in a volatile period. We had a violent selloff last week and this huge rebound today."
He said that the moves in the market and in the VIX show investors are uncertain about how to factor in all the so-called headline risk, including Greece, the Gulf oil spill and the latest for Goldman Sachs, which is fighting off fraud charges.
Additionally, "It shows we're getting away from fundamentals like the economy and corporate profits and just focusing on the day-to-day news," he said.
Rescue plan: The European rescue package, valued at close to $1 trillion over three years, includes government-backed loans, the expansion of a stabilization program and funding from the International Monetary Fund (IMF)
Under the deal, the 16 European Union (EU) countries will provide a collective $570 billion in the form of government-backed loans. The European Commission, the EU's governing body, will provide another $76 billion under an already existing stabilization fund. The IMF will provide at least $284 billion.
Additionally, the European Central Bank said it would start buying government and corporate debt. The ECB was said to have started buying euro zone government bonds Monday, although details were not available.
Finally, the Federal Reserve joined central banks in Canada and Europe in re-establishing a program that makes more U.S. dollars available for interbank lending.
On the move: Gains were broad based, with 30 Dow components rallying.
Big contributors to the Dow's gains were aerospace firms Boeing (BA, Fortune 500) and United Technologies (UTX, Fortune 500), heavy-equipment maker Caterpillar (CAT, Fortune 500), tech firms IBM (IBM, Fortune 500) and Hewlett-Packard (HPQ, Fortune 500), as well as 3M (MMM, Fortune 500), McDonald's (MCD, Fortune 500) and Procter & Gamble (PG, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, winners topped losers by almost 19 to 1 on volume of 1.86 billion shares. On the Nasdaq, advancers beat decliners by seven to one on volume of 2.87 billion shares.
Fannie Mae: Mortgage backer Fannie Mae (FNM, Fortune 500) asked for another $8.4 billion from the federal government Monday after reporting a massive first-quarter loss. The losses were due to accounting changes and the continued weakness in the U.S. housing market.
Fannie Mae, along with fellow mortgage company Freddie Mac (FRE, Fortune 500), was put under government conservatorship during the height of the financial crisis in fall 2008. It already owed the government $76.2 billion.
Last week, Freddie Mac asked for another $10.6 billion after posting an $8 billion quarterly loss.
World markets: Stocks around the globe finished higher. In Europe, France's CAC 40 gained 9.7%, Germany's DAX added 5.3% and Britain's FTSE rose 5.2%. On Monday, the Bank of England said it will keep its key interest rate unchanged at a low 0.5%.
Asian markets rallied as well, with Japan's Nikkei adding 1.6% and Hong Kong's Hang Seng gaining 2.5%. On Friday, the Bank of Japan pumped $22 billion into financial markets to ease fears about the impact of the Greek debt crisis.
Dollar and commodities: The euro gained 1% against the dollar, continuing to recover after having fallen to a 14-month low versus the U.S. currency last Thursday. The dollar rose 1.7% versus the yen.
U.S. light crude oil for June delivery gained $1.69 to settle at $76.80 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery slid $9.60 to settle at $1,200.80 per ounce.
Bonds: Treasury prices tumbled, pushing the yield on the 10-year note to 3.57% from 3.43% Friday. Treasury prices and yields move in opposite directions.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.89%||3.88%|
|15 yr fixed||2.88%||2.84%|
|30 yr refi||3.99%||3.92%|
|15 yr refi||2.98%||2.94%|
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