Stocks surged late in trading on Tuesday as buyers latched onto another report of agreements to strengthen the euro zone's rescue fund to bid up stocks aggressively.

All three major indexes rose sharply after a Britain's Guardian newspaper said France and Germany will increase the euro zone's rescue fund to 2 trillion euros as part of a plan to resolve the sovereign debt crisis.

Investors and buyers piled into financial shares, which had started the day weak but gained momentum on the late news. Shares of Bank of America rose 10.1 percent to $6.64 and trading volume for the Direxion Financial Bull 3X ETF jumped to the highest since April 2010.

The development from Europe is really what we had been rallying on for the past two weeks before Germany yesterday signaled that the issue wasn't quite resolved, said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.

But the direction of the market can easily reverse if we get something bad again from Europe.

Bank of America shares had been lower after it reported a third-quarter profit but showed its main businesses struggled as income from lending and investment banking fell.

Goldman Sachs Group Inc added 5.5 percent to $102.25 after reporting a rare loss, but Goldman said it was moving to cut costs, including employee pay.

Trading picked up shortly after the Guardian report, with 2.9 billion shares exchanging hands in the final hour on the New York Stock Exchange, NYSE Amex and Nasdaq. A total of 8.8 billion shares traded for the day, above the year's daily average so far of about 8 billion.

The Dow Jones industrial average <.DJI> was up 180.05 points, or 1.58 percent, at 11,577.05. The Standard & Poor's 500 Index <.SPX> was up 24.52 points, or 2.04 percent, at 1,225.38. The Nasdaq Composite Index <.IXIC> was up 42.51 points, or 1.63 percent, at 2,657.43.

The CBOE Volatility Index VIX <.VIX>, Wall Street's fear gauge, was down nearly 5 percent but still remained elevated above 30.

Financial stocks were the top gainers. The KBW bank index <.BKX> advanced 5.6 percent.

U.S. homebuilder stocks were helped by strong homebuilder sentiment data, signaling improvement in the housing market.

Shares of KB Home rose 11.6 percent to $7.02.

(Reporting by Angela Moon, Editing by Kenneth Barry)

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