U.S. stocks soared Friday, and all three indexes closed out the first half of 2012 up more than 5%. The Nasdaq has etched double-digit gains.
A deal among European leaders to help struggling eurozone banks buoyed global markets Friday, at least temporarily erasing investors' looming fears over the viability of the eurozone.
While stocks have clocked broad gains for the year, all three indexes closed out the second quarter below first quarter highs. Fears over Europe pushed stocks down nearly 10% in early June.
Still, on Friday, investors looked solely at what was accomplished at the two-day European Union summit in Brussels. European leaders struck a "breakthrough" deal early Friday aimed at easing the recapitalization of banks.
Expectations were so low heading into the summit that the surprise announcement sparked widespread euphoria. Investors were relieved to see sky-high bond yields in Spain and Italy retreat from 7% -- the level that flashes bailout warning signals.
"We're finally seeing a cause and effect," said Frank Davis, director of trading at LEK Securities. "It's a very positive sign that they can have a timely impact with some of the moves EU leaders make."
The Dow Jones industrial average closed the day up 278 points, or 2.2%. The S&P 500 gained 33 points, or 2.5%. The Nasdaq added 86 points, or 3%.
Financial stocks led the broad worldwide rally.
In Paris, BNP Paribas and Credit Agricole and Societe Generale rose nearly 10%. In Frankfurt, Commerzbank rose 5% and Deutsche Bank surged 7%. In Madrid, Banco Santander jumped 7%.
In the United States, Bank of America, Citigroup, Morgan Stanley and Goldman Sachs all rose between 2% and 6%.
JPMorgan, which is still reeling from news that its trading losses could jump as high as $9 billion, dipped slightly, and Barclays, which is under pressure for manipulating LIBOR rates, closed down 5%
U.S. stocks closed in negative territory Thursday, after clawing back in the final hour of trading from much steeper losses.
World markets: The EU deal includes a mechanism to inject capital directly into banks, which may reduce what Investec bond analyst Elisabeth Afseth called "the bank-sovereign negative feedback loop."
Afseth said the loop starts when a nation borrows to recapitalize its troubled banks, which then increases the country's debt, pushes up bond yields, reduces bond values and forces banks to require even more capital.
"It's an important step," Afseth said, but she remains skeptical. "You have to be a little bit concerned where the funds are coming from. They could potentially run out quite quickly."
EU leaders are hoping for implementation of the bank agreement by July 9.
European stocks all closed higher. Britain's FTSE 100 added 2%, the DAX in Germany jumped 3.5% and France's CAC 40 rallied 3.8%.
Asian markets also ended higher. The Shanghai Composite closed just above breakeven, while the Hang Seng in Hong Kong surged 3.1% and Japan's Nikkei gained 1.5%.
Economy: The Chicago Purchasing Managers' Index for June came in at 52.9, slightly below expectations of 53, but up from 52.7 last month. Any reading above 50 signifies expansion in the region's manufacturing sector.
The University of Michigan's Consumer Sentiment Index for June came in below expectations at 73.2, compared with 74.1 in May.
Companies: Home builder KB Home reported a second-quarter loss Friday that was smaller than expected, which pushed shares up 13%.
Nike shares tumbled 9%, a day after the company reported quarterly earnings that missed analyst estimates.
Shares of Research In Motion fell 19%, after the BlackBerry-maker reported a wider-than-expected loss Thursday, and another delay of its long-awaited BlackBerry 10 operating system.
Ford shares slid nearly 5%. On Thursday, the automaker lowered its guidance based on poor performance by its international divisions.
Shares of gun manufacturing company Smith & Wesson surged after the company's earnings beat profit expectations by a wide margin.
Currencies and commodities: The dollar fell against the euro, British pound and Japanese yen.
Oil for August delivery rose $7.27 to $84.96 a barrel.
Gold futures for August delivery jumped $53.80 to $1,604.20 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.65% from 1.58% late Thursday.