World stocks jumped and the euro also rose on Monday as optimism grew that European leaders were readying a plan to resolve the region's debt crisis.
Traders were sceptical, nonetheless, and headlines dismissing the plan could reverse the markets' reaction, which also sent U.S. Treasury bonds and the dollar lower.
Germany and France pushed to acquire powers to reject national budgets in the euro zone that breach European Union rules ahead of an EU summit on December 9.
Late in the day, Fitch revised to negative the outlook on the United States' AAA credit rating, citing the agency's declining confidence that measures necessary to place the country's finances on a sustainable path would be reached soon.
A U.S. congressional committee failed last week to agree on at least $1.2 trillion in deficit-reduction measures. The benchmark 10-year U.S. Treasury note was down 3/32, the yield at 1.9739 percent.
Fiscal union could spare the euro zone falling into another sovereign debt crisis like the one it is experiencing, which threatens to pull the region back into recession.
Still, plans seem to be focussing on triple-A rated euro zone sovereigns, leaving Italy and Spain largely outside the fold.
Analysts say the move may not be followed by more buying of stocks before a plan for euro zone help materializes.
Unfortunately, these rallies are short-lived until real dollars or real euros are injected into the financial system, said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.
Additional hope for a resolution was buoyed by an Italian newspaper report suggesting the International Monetary Fund was preparing a rescue plan for debt-laden Italy, although an IMF spokesperson denied it.
Record retail sales over the U.S. Thanksgiving provided further impetus for bullish traders, and stocks of retailers soared.
The Dow Jones industrial average <.DJI> ended up 291.23 points, or 2.59 percent, at 11,523.01. The S&P 500 <.SPX> gained 33.88 points, or 2.92 percent, to 1,192.55. The Nasdaq Composite <.IXIC> gained 85.83 points, or 3.52 percent, to 2,527.34.
Following seven straight sessions of losses that dragged the S&P 500 to a 7-week low, the index posted its best day in a month.
The MSCI world equity index <.MIWD00000PUS> jumped 3.1 percent. The index is down almost 13 percent year-to-date and nearly 20 percent since hitting a three-year high in May.
The bet on Europe's ability to contain its debt crisis coupled with the strong start to U.S. holiday sales also helped lift crude oil prices.
ICE Brent January crude rose 2 percent and U.S. January crude added 1 percent.
Copper prices jumped 2.8 percent, though gains were seen vulnerable ahead of next week's European summit.
In the foreign exchange market, the euro added 0.6 percent to $1.3309.
We have had bouts of optimism several times in the past year and they ended in tears, said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup, in New York.
There has been a more active discussion about how to handle the debt crisis than there was a month ago, but upcoming events will be key to whether this wave of optimism is sustainable.
Any push for EU treaty changes needed for the creation of broader fiscal union could face strong opposition by various euro zone and EU countries. This could mean ECB support for weaker euro zone bond markets may not be as forthcoming as some hope.
Declines in safe-haven U.S. Treasury prices could reverse after a warning by Moody's that the rapid escalation of the euro region's sovereign and banking crisis threatens the rating of all European government bonds.
(Reporting by Rodrigo Campos; additional reporting by Julie Haviv and Caroline Valetkevitch; Editing by Dan Grebler)