Signs that a widespread European debt crisis could be averted helped send stocks up Monday.
French banks agreed to accept slower repayment of Greece's debt, giving Greece more time to meet its other financial obligations. French banks hold $21.3 billion in Greek government debt. Greek lawmakers also began to debate more budget-cutting measures. Greece's parliament needs to pass the new austerity plan this week before the country can receive a $17 billion installment from a rescue package arranged last year.
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. Analysts say lower gas prices could help boost consumer spending in other areas in the coming months.
The Dow Jones industrial average rose 108.98 points, or 0.9 percent, to close at 12,043.56. The Standard & Poor's 500 index rose 11.65, or 0.9 percent, to 1,280.10. The Nasdaq composite index rose 35.39, or 1.3 percent, to 2,688.28.
Analysts said the rally was stronger than the economic news would suggest in part because many traders invest when indexes 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.
Amazon.com Inc. rose 4.5 percent to $201.25, making it the top-performing company in the S&P 500. Morgan Stanley analysts said the online retailer should benefit from expanding international sales in places like Japan and Germany, where densely populated cities leave little room for large, low-price retail stores.
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 like the smart phones that Molex manufactures.
Broad markets have dropped 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 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 1.8 percent. At the end of June last year, the Dow was down 6.3 percent and the S&P 7.6 percent. The Dow finished the year up 14 percent, the S&P up 12.8 percent.
Europe's debt problems have weighed on global markets in recent weeks, with major indexes 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.
More than two stocks rose for every one that fell on the New York Stock Exchange. Consolidated trading volume was 3.3 billion shares, lighter than average.