(REUTERS) - Stocks advanced on Friday as European Union leaders agreed on measures to address the region's sovereign debt crisis, while U.S. consumer confidence rose to its highest level in six months.
An agreement on stricter budget rules for the euro zone went someway to address the structural problems behind the bloc's debt crisis, but investors said more was now needed to relieve stress in the region's troubled debt markets.
Nothing really concrete has come out of that meeting yet, so it is a little surprising that we are seeing as much of an upturn as we have seen, said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois.
Equities had risen in anticipation of a plan, with the S&P 500 up 6.5 percent since late November. But Wall Street tumbled on Thursday after the European Central Bank dashed hopes for additional bond buying, underscoring that markets continue to react to every headline out of Europe.
At least part of Friday's rally was a snap-back from the previous sessions losses, traders said.
Banks, which have been pressured by the uncertainty over Europe, rallied after the summit. Bank of America Corp rose 3.4 percent to $5.78, while JPMorgan Chase & Co added 2.4 percent to $32.99. The Financial Select Sector SPDR rose 2.4 percent.
In the latest sign of resilience from the U.S. economy, consumer sentiment rose to its highest level in six months in early December on signs of a better jobs market and an improving economy, according to a survey by Thomson Reuters/University of Michigan.
Tom Donino, co-head of equity trading at First New York Securities, said there was still a bearish bias among traders that had been hurting trading performance as markets rallied over the past two weeks. Continued strength would likely spark performance-chasing, especially from hedge funds, he said.
If they can stabilize the problems over there in Europe to where people aren't worried about a meltdown scenario every time they walk in the door, this market was ready to go up and it has, said Donino.
The Dow Jones industrial average <.DJI> gained 160.33 points, or 1.34 percent, to 12,158.03. The Standard & Poor's 500 Index <.SPX> rose 17.92 points, or 1.45 percent, to 1,252.27. The Nasdaq Composite Index <.IXIC> added 38.70 points, or 1.49 percent, to 2,635.08.
The EU summit failed to secure changes to the EU treaty among all the member countries and investors warned the move was far from a panacea. Indications suggest the region is sliding into a recession and questions about how to bring down high sovereign debt yields are still unanswered.
Goldman Sachs suggested that investors short German equities through the benchmark DAX index <.GDAXI> in a note to clients published late on Thursday.
The European summit seems focused on a set of future priorities for increased fiscal risk sharing and the outlining of some of the needed elements of a new fiscal arrangement, but looks to have little to say about alleviating proximate stresses in Greece and Italy and the European banking system more generally, Goldman said.
Still, German Bunds fell by more than one full point on Friday, while Italian bonds reversed losses, with traders citing frequent European Central Bank forays into Italian debt markets throughout the day.
Traders also said fast money accounts were covering short positions in bonds of so-called peripheral EU countries.
Some caution signals, though, were sent by major U.S. companies. DuPont and Co fell 4.9 percent to $44.25 after the Dow component cut its 2011 profit outlook, citing slower growth in some businesses.
Texas Instruments Inc cut its revenue outlook for the current quarter, warning of lower demand. Altera Corp also cut its fourth-quarter revenue outlook late Thursday.
Texas Instruments fell 1.6 percent to $29.45 while Altera was off 1.8 percent to $34.84.
We are now beginning to see the collateral damage of the events in Europe with the earnings guidance cuts, said Peter Boockvar, equity strategist at Miller Tabak & Co in an emailed note.
(Editing by Kenneth Barry)