The Dow Jones industrial average jumped 208 points Thursday after Greece scrapped a referendum on unpopular budget cuts and the European Central Bank unexpectedly cut interest rates. It was the second straight day of big gains for stocks.
The European Central Bank surprised markets by cutting its benchmark interest rate a quarter of a percentage point, to 1.25 percent. The bank had increased its key rate twice this year, but that was before Mario Draghi took over as head of the bank this week. The announcement sent stocks higher as investors hoped that lowering borrowing costs would help prevent a recession in Europe.
Buying intensified after Greek Prime Minister George Papandreou abandoned his effort to put austerity measures to a public vote. A "no" vote could have led to a default on Greece's debt and chaos in the European financial system.
Investors and European nations were shocked by Papandreou's announcement Monday that he would call a referendum on a financial rescue worked out just last week after months of negotiations between Greece and its international lenders.
The Dow lost 573 points the first two days of this week as investors feared that Europe's plan to preserve its currency union was in jeopardy.
Markets in the United States and Europe have been highly sensitive to headlines out of Europe as leaders there try to avoid a financial calamity. Investors have become fatigued as efforts to resolve the crisis seem to continually run into trouble.
"Today it looks like a deal in Europe is more likely and that's making the market positive, but who knows what people will think tomorrow," said Uri Landesman, president of Platinum Partners.
The Dow rose 208.43 points, or 1.76 percent, to 12,044.47, above 12,000 for only the third time since the start of August. Even with the gain of 386 points in the last two days, the Dow is still 1.5 percent below where it closed on Friday.
The Standard & Poor's 500 index rose 23.25, or 1.88 percent, to 1,261.15. The Nasdaq composite index added 57.99 points, or 2.20 percent, to 2,697.97.