World stocks and the euro rallied on Thursday on strong U.S. economic data and indications that euro-zone leaders were on track to approve a crucial bailout for Greece.

The European common currency erased its losses against the dollar after a euro-zone official said leaders were finishing the details of a second bailout for Greece worth at least 130 billion euros.

The development eased fears of a chaotic Greek default, driving prices of safe-haven 30-year U.S. Treasuries bonds down more than 1 point.

U.S. stocks traded higher on data showing U.S. jobless benefits claims unexpectedly fell to a near four-year low last week and U.S. housing starts for January rose more than expected.

The S&P 500 index rose to its highest level since May 2011.

We're getting this incredible flow of good data. It's hard not to want to step into the market, said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

People are increasingly of the opinion that although Europe will continue to have flare-ups, it's not likely to become a calamity for the world economy, he said.

The Dow Jones industrial average <.DJI> rose 124.95 points, or 0.98 percent, to 12,905.90, while the Standard & Poor's 500 Index <.SPX> gained 14.32 points, or 1.07 percent, to 1,357.55. The Nasdaq Composite Index <.IXIC> was up 40.60 points, or 1.39 percent, at 2,956.43.

In Europe, the FTSEurofirst 300 <.FTEU3> erased losses to edge up 0.1 percent. World stocks as measured by the benchmark MSCI All-Country World Index <.MIWD00000PUS> were 0.46 percent higher.

The euro rose 0.5 percent to $1.313. It also jumped 1.15 percent against the yen, to a two-month high of 103.61.

The possibility of some concrete progress (in Greece's bailout deal) is reinvigorating risk appetite and pushing up the euro, said Kathy Lien, director of research at GFT Forex in Jersey City. We're finally walking in the right direction.

As investors moved into stocks, prices of benchmark 10-year U.S. Treasury notes fell 19/32, sending their yield up to 1.996 percent. Thirty-year Treasuries were 1-06/32 higher in price, their yield at 3.15 percent.

U.S. crude oil futures rose 0.5 percent to settle at $102.31 a barrel, driven up by concerns about disruption in supplies from Iran and the North Sea.

(Additional reporting by Rodrigo Campos and Luciana Lopez; Editing by Kenneth Barry, Dan Grebler and Padraic Cassidy)