In one day, two of the biggest fears tormenting global financial markets since summer have been swept to the sidelines, at least for now.
European leaders agreed on a bold plan to end their 2-year-old debt crisis, while a new report showed that the U.S. economy accelerated last quarter, dousing fears of another recession.
The result was a powerful stock rally that left the Dow Jones industrial average on track for its biggest monthly gain in 25 years. If it sticks, the latest surge could help bolster business confidence about the economic outlook for 2012.
But it also may further aggravate small investors who have cashed out of the market in droves in recent months, pushed away by wild swings that have left many people frightened and disgusted.
Also, crucial challenges loom for the wobbly global economy. U.S. consumer confidence has crashed, raising doubts about holiday shopping. China's growth is slowing. And markets could be riled again if congressional leaders fail to reach a deal by a Nov. 23 deadline to slash future budget deficits.
Thursday, though, optimism carried the day. The Dow index ended up 339.51 points, or 2.9 percent, at 12,208.55, its highest level since July 28. In Europe, stocks jumped 5 percent or more in Germany, France and Italy, and the euro soared against the dollar.
The stage was set after a marathon negotiating session among European heads of state. After two years of being slow to respond to the government debt crisis that began in Greece and has since threatened the entire continent, the leaders surprised skeptics with their new plan of attack.
They agreed to slash Greece's debt burden, while boosting the firepower of a previously created $600 billion rescue fund for struggling member states and banks.
A key goal: Provide guarantees to investors who buy Italian government bonds, to keep interest rates from spiraling higher and driving the eurozone's third-largest economy into ruin.
"It's a strong signal that they recognize the need to be more aggressive to catch up with the crisis," said Mohamed El-Erian, chief executive of money management giant Pimco.
Meanwhile, the new data from the Commerce Department showed slow but steady improvement in the economy throughout this year.
"This should almost eliminate people's concerns about a double-dip recession," said Gregory Hess, an economist and dean of the faculty at Claremont McKenna College. "It's going to be slow growth, which means that we're still susceptible to economic shocks, but with building momentum we should be gaining speed."
Consumer spending, particularly on automobiles, helped boost growth. Personal consumption increased at an annual rate of 2.4 percent in the third quarter. Also, the third quarter benefited in part from revived manufacturing.
Growth for the United States in the near term may depend in part on whether stocks continue to recover, experts said.
Rebounding share prices could give a psychological lift to businesses and to high-income earners, keeping them spending, said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco.
But the market's resurgence also could encourage selling by individual investors who are tired of being whipsawed by extreme volatility. In August and September, investors pulled a net $41 billion from U.S. stock mutual funds, data show.
Regulators have left markets at the mercy of short-term, computer-driven trading, said Jeffrey Yale Rubin, with market data firm Birinyi Associates in Westport, Conn. "They don't understand how that plays on the psychology of the individual investor," he said. "People think, 'This is just gambling.' "