World stocks jumped and commodity prices also rose on Monday as optimism grew that European leaders were readying a plan to resolve the region's debt crisis.
Traders were sceptical, nonetheless, and headlines dismissing the plan could reverse the risk-on trade that sent U.S. Treasury bonds and the dollar lower.
Germany and France pushed to acquire powers to reject national budgets in the euro zone that breach European Union rules ahead of an EU summit on December 9.
Fiscal union could spare the euro zone falling into another sovereign debt crisis like the one it is going through and that threatens to pull the region back into recession.
It looks like we're seeing progress in the euro zone, and if that leads to a more stable Europe, the S&P could move back to at least 1,300, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.
Additional hope for a resolution was seen as an Italian newspaper suggested the International Monetary Fund was preparing a rescue plan for Italy, although an IMF spokesperson denied the report.
The Dow Jones industrial average <.DJI> gained 280.60 points, or 2.50 percent, at 11,512.38. The Standard & Poor's 500 Index <.SPX> was up 31.95 points, or 2.76 percent, at 1,190.62. The Nasdaq Composite Index <.IXIC> was up 78.33 points, or 3.21 percent, at 2,519.84.
The MSCI world equity index jumped 3.2 percent. The index is down roughly 13 percent year-to-date and almost 20 percent since hitting a three-year high in May.
Retail stocks soared in the United States after stores racked up record sales over the Thanksgiving weekend.
The bet on Europe's ability to contain its debt crisis coupled with a strong start to U.S. holiday sales also helped lift crude oil prices.
ICE Brent January crude rose more than 2 percent and U.S. January crude added 1.4 percent.
Copper prices jumped to a more than one week high, though gains were seen vulnerable ahead of next week's European summit.
In the foreign exchange market, the euro pared most of its early gains and edged up less than 0.1 percent to $1.333, having climbed to almost $1.3400.
Whispers of solutions continue to spread through markets and even the potential of such a plan being concocted combined with a solid start to holiday shopping in the U.S. has led to a massive shift towards 'risk-on', said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Detailed operational rules for the euro zone's bailout fund are ready for approval by the region's finance ministers when they meet on Tuesday. The approval of the rules will clear the way for the 440 billion European Financial Stability Facility (EFSF) to attract cash from private and public investors and could multiply the EFSF's resources.
Declines in safe-haven U.S. Treasuries could be short-lived as after a warning by Moody's that the rapid escalation of the region's sovereign and banking crisis threatens the rating of all European government bonds. The benchmark 10-year U.S. Treasury note was down 7/32, with the yield at 1.9895 percent.
(Additional reporting by Nick Olivari and Ryan Vlastelica; Editing by Dan Grebler)