Stocks rallied on Monday as investor sentiment was buoyed by a pledge by German and French leaders to tackle the euro zone debt crisis.

The S&P 500 topped a key technical level for the first time in more than two months in what could be a bullish signal.

Markets looked again to Europe for direction. German Chancellor Angela Merkel and French President Nicolas Sarkozy promised on Sunday to unveil a comprehensive new package to ease the euro zone's debt crisis.

A move to nationalize Franco-Belgian bank Dexia was seen as an indication that governments would step in and keep large lenders from going under.

If the market perceives results could fail to stop the spread of the sovereign debt crisis beyond Greece, could spark a new wave of selling.

The market gave Merkel and Sarkozy the benefit of the doubt. They know they have to come up with specifics, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the Dexia rescue showed European governments can act quickly and decisively, boosting hopes for real action ahead.

The Dow Jones industrial average <.DJI> gained 266.33 points, or 2.40 percent, to 11,369.45. The Standard & Poor's 500 Index <.SPX> rose 32.24 points, or 2.79 percent, to 1,187.70. The Nasdaq Composite Index <.IXIC> jumped 74.04 points, or 2.99 percent, to 2,553.39.

Bank stocks were lifted as the Franco-German pledge and the Dexia rescue helped to ease concerns that U.S. lenders would be exposed to losses at their European counterparts.

The KBW bank index <.BKX> jumped 4 percent, with JPMorgan Chase & Co gaining 4.6 percent to $32.11 and Bank of America Corp up 5 percent to $6.19.

The benchmark S&P 500 climbed above its 50-day moving average for the first time since late July. If it holds above that level at the close, it could trigger a bullish technical signal and generate more buying in the days ahead.

Netflix Inc jumped 4.6 percent to $122.66 after its chief executive reversed an unpopular decision to separate the DVD rental business and online video streaming service.

Government offices and the bond market are closed for the U.S. Columbus Day holiday and may produce lighter-than-usual equities volume.

(Reporting by Rodrigo Campos; editing by Jeffrey Benkoe)