French President Sarkozy and German Chancellor Merkel arrive to address a news conference at the Chancellery in Berlin
French President Nicolas Sarkozy (R) and German Chancellor Angela Merkel (C) arrive to address a news conference at the Chancellery in Berlin October 9, 2011. REUTERS

U.S. stocks and other global risk assets surged on Monday on promise from France and Germany to soon come up with a bailout plan for the Eurozone.

The S&P 500 Index jumped 3.41 percent, or 39.43 points, to close at 1,194.89. The Dow Jones Industrial Average soared 2.97 percent, or 330.06 points, to end at 11,433.18. The Nasdaq Composite rallied 3.50 percent. Germany’s DAX rose 3.02 percent and France’s CAC 40 climbed 2.07.

Late Sunday, French President Nicholas Sarkozy and German Chancellor Angela Merkel said they would unveil the plan before the November G20 Summit.

The plan will address two key problems: capital shortfalls in European banks and Greece’s funding problems.

“We need to deliver a response that is sustainable and comprehensive,” said French President Nicholas Sarkozy at a joint press conference with Merkel.

“It is becoming increasingly clear to us that Germany and France realize they must act, and act soon,” said Richard Smith, a strategist at Connecticut-based Faros Trading.

Since May 2, U.S. stocks have plunged on fears emanating from Europe. On Oct. 4, it fell to an intraday low of 1,075, which is almost 22 percent below the May 2 intraday high.

Then, starting from the afternoon of Oct. 4, a string of good news helped U.S. stocks rally a total of 11 percent so far.

The European debt crisis matters because the global financial system has more than $2 trillion of exposure to peripheral European debt. (The U.S. financial system has more than $600 billion in exposure).

Germany