Stocks rose Thursday, extending the biggest monthly rally since 1974 for the Standard & Poor's 500 Index, as European leaders agreed to expand a bailout fund to $1.4 trillion and American economic growth accelerated.
The S&P 500 rose 3.4 percent to 1,284.59, erasing its 2011 loss and rising to the highest level since Aug. 1. The gauge has climbed 14 percent in October. The Dow Jones Industrial Average added 339.51 points, or 2.9 percent, to 12,208.55. The Russell 2000 Index of small companies rallied 5.3 percent and is up 19 percent in October.
About 11.9 billion shares changed hands on U.S. exchanges by 4:30 p.m. EDT, or 29 percent above the three-month average.
"This sort of half-baked solution out of Europe comes at a good time," Michael Shaoul, chairman of Marketfield Asset Management in New York, said in a telephone interview. "The market simply wanted to say, 'OK, we'll give them a chance to work things out.' They can mess it up, but my best guess is we put this behind us."
Concern over Europe's debt crisis had sent the S&P 500 to a one-year low earlier this month. The index came within 1 percentage point of extending its decline from its April peak to 20 percent, the common definition of a bear market. Since then, it has risen 17 percent on optimism Europe would contain its crisis.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 15 percent to 25.46. The measure known as the VIX has fallen 41 percent so far in October, poised for a record monthly drop.
A gauge of financial stocks in the S&P 500 jumped 6.2 percent as all 81 of its companies rose. It has rebounded 25 percent from a two-year low Oct. 3, entering a bull market. Bank of America increased 9.6 percent to $7.22. JPMorgan added 8.3 percent to $37.02.
Stocks also rose after the U.S. economy grew in the third quarter at the fastest pace in a year as gains in consumer spending and business investment helped support a recovery on the brink of faltering. Separate data showed that fewer Americans filed applications for unemployment assistance last week, while those on benefit rolls dropped to a three-year low, signaling limited improvement in the labor market.
The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand, according to another report.
The Morgan Stanley Cyclical Index of companies most reliant on economic growth climbed 5.2 percent. Alcoa, the largest U.S. aluminum producer, jumped 9.5 percent to $11.34. GE gained 6.2 percent to $17.37.
Akamai Technologies climbed 15 percent to $27.45. The company, whose server network lets businesses speed data delivery, forecast fourth-quarter sales that topped some analysts' estimates.
Aflac jumped 8.7 percent to $46.77. The health insurer, which makes more than 70 percent of its sales in Japan, said third-quarter profit rose 7.8 percent as the yen strengthened against the dollar.
Avon Products tumbled 18 percent, the most in the S&P 500, to $18.81. The door-to-door cosmetics merchant said the Securities and Exchange Commission is investigating the company's contacts with financial analysts. The company also reported profit that missed analysts' estimates.