(REUTERS, New York) - Stocks rallied more than one percent on Monday, building on the previous week's gains, as optimism grew an agreement between French and German leaders would break new ground to resolve the Eurozone debt crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris, and Sarkozy said a proposed agreement between the two countries will be sent to EU officials on Wednesday.

The proposal to be taken up at the EU summit will mean a modified EU treaty, which will need to be approved by all 27 European Union leaders, as well as a budget-balancing rule across the Eurozone.

While a final agreement could still disappoint investors, equities have been helped recently by rising hopes of forthcoming decisive action in the Eurozone. Indexes posted their largest weekly percentage advance last week since mid-March 2009. Those gains also came on a U.S. unemployment rate that unexpectedly dropped to a 2-1/2 year low.

Everyone is focused on the summit, and right now, the tone seems to be going in the right direction, said Jason Pride, director of investment strategy at Glenmede Investment and Wealth Management in Philadelphia. That said, the second the information or tone changes to the negative, we could see a retracement of our recent gains.

Adding to the belief that Europe would be taking adequate steps to address its issues, Italy unveiled a $40.32 billion package of austerity measures, which eased tensions surrounding the country's finances. European stocks rose one percent.

The Dow Jones industrial average was up 139.86 points, or 1.16 percent, at 12,159.28. The Standard & Poor's 500 Index was up 16.43 points, or 1.32 percent, at 1,260.71. The Nasdaq Composite Index  was up 26.92 points, or 1.02 percent, at 2,653.85.

The S&P 500 is nearing its 200-day moving average around 1,264. Breaching that level could signal more gains.

The pace of growth in the vast U.S. services sector slowed more than expected in November, according to the Institute for Supply Management, dropping to the lowest level since January 2010.

MetLife Inc. rose 3.2 percent to $32.81 after the insurer forecast 2012 earnings growth of as much as seven percent, though its fourth-quarter outlook was below expectations.

Germany's SAP announced a $3.4 billion cash deal to buy SuccessFactors , sending shares of the web-based software company up 51 percent to $39.71.

(Editing by Padraic Cassidy)