NEW YORK ( TheStreet) -- Stocks surged into the close Monday on signs that European banks would be protected from potential defaults on sovereign debt, closing more than 3% higher.

Tech strength helped the Nasdaq outperform the other indices. The index soared by 87 points, or 3.5%, to close at its session high of 2566. The broader rally was also led by energy, basic materials and financial stocks. Bank of America ( BAC), JPMorgan Chase ( JPM) and Caterpillar ( CAT) dominated the top of the Dow Jones Industrial Average index throughout the session. The Dow, which climbed for the fourth of its last five sessions, finished 330 points, or 3% higher, at 11,433 -- its high for the session.

All 30 Dow components gained ground, with consumer staples showing the mildest gains. McDonald's ( MCD), Coca-Cola ( KO), Kraft Foods ( KFT), Procter & Gamble ( PG) and Johnson & Johnson ( JNJ) were the Dow's biggest laggards on Monday.

The S&P 500 also closed at its intraday high of 1195, gaining 39 points, or 3.4%. Materials stocks surged by more than 4% according to the index's exchange traded fund Materials Select Sector SPDR ( XLB).


Over the weekend, French and German leaders pledged to announce a "comprehensive package" in three weeks to recapitalize banks and to keep Greece in the eurozone. Investors speculated last week that officials were talking about ways to shore up the financial system, but comments from Germany's Angela Merkel and French President Nicolas Sarkozy gave further reassurance that such a plan might materialize. However, details of what officials have in the works have been sparse.

"Some of this rally is also a reversal of Friday's losses but the majority is driven by Europe," said Paul Nolte, managing director at Dearborn Partners. "The lighter volumes point to the fact that it's in part a short-covering rally."

Some 3.8 billion shares traded on the New York Stock Exchange and roughly 1.6 billion traded hands on the Nasdaq. Some investors questioned how long the rally would last given continued uncertainty surrounding Greece and doubts as to whether policymakers would hold true to their word.

Helping lift sentiment was news that Belgian and French lender Dexia agreed to sell its Belgian unit to the Belgian government for 4 billion euros ($5.4 billion). The nationalization of the bank sets a precedent for how other eurozone governments could act if their banks fell into trouble.

Hopes that Europe would avoid a debt crisis pushed down the yen and dollar and helped the euro rally. The dollar index, a measure of the dollar's value against a basket of currencies, was down 1.484%.

Losses in the greenback pushed up gold prices with gold for December delivery gaining $35, or 2.1% to settle at $1,670.80 an ounce. In other commodities, the November crude oil contract added $2.43, or 2.9%, to settle at $85.41 a barrel.

European stocks surged higher after U.S. markets opened. London's FTSE closed up 1.8% Germany's DAX finished up 3.02%. Japan's Nikkei Average rose 0.98%, and Hong Kong's Hang Seng closed up 0.02%.

Tuesday marks the start of third-quarter earnings season, kicking off with Alcoa ( AA) reporting after tomorrow's close. The largest U.S. aluminum producer has been hit by a decline in aluminum prices and is expected to report downbeat earnings of 22 cents per share according to ThomsonOne Analytics. In a show of strong momentum ahead of its earnings release, Alcoa surged 3.9% to $10.09 on Monday.

"We want to hear what companies have to say about the global landscape," says Quincy Krosby, market strategist at Prudential Financial. "When there's an ongoing slowdown, expect to see some misses," she adds, noting that banks and industrials are expected to bear the brunt of the economic pressures this season.

Dan Greenhaus, market strategist at BTIG, wrote in a research note that clients appear "cautiously optimistic" about corporate earnings although the good news is that there has been a "dearth of negative preannouncements."

U.S. stock markets are open but bond markets are closed for the Columbus Day holiday.

As of last Friday, the benchmark 10-year Treasury was last at 23/32, pushing the yield to 2.068%. In corporate news, Superior Energy Services ( SPN), the oilfield services company, agreed to buy peer Complete Production Services ( CPX) in a cash-and-stock deal valued at $2.7 billion. Shares of Superior Energy fell 13.8% to $23.63 while Complete Production shares surged 39.5% to $28.42.

Jerry Yang, Yahoo's! ( YHOO) co-founder and former CEO, is interested in a deal with private-equity firms that would take the Internet company private, Reuters reported, citing people familiar with the situation. Yahoo! shares rose 2.4% to $15.84.

Netflix ( NFLX) abandoned its plans to split off the company and rename its DVD business "Qwikster." The company said it plans to keep its DVD-by mail and its streaming services under the Netflix umbrella. Shares erased gains during trading and declined 4.8% to $111.62.

Last week, the credit downgrade of Italy and Spain by Fitch Ratings sent U.S. equities lower by the close Friday, although all major averages still posted gains for the week. Disagreement between Belgium's federal government and regional groups as to whether the country should nationalize Dexia's Belgian unit had exacerbated fears that the eurozone debt crisis not was improving.

A better-than-expected September jobs report tempered sentiment, although economists were still disappointed that the recovery in the U.S. jobs market remained too anemic to bring down the unemployment rate. The choppy week of trading finished with blue-chips posting close to a 2% gain.

-- Written by Chao Deng and Melinda Peer in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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