U.S. Stocks Extend Gains on Giant Eurozone Bailout Agreement

U.S. stocks extended their gains on news that German and French leaders agreed to expand the powers of the European Financial Stability Facility (EFSF) to two trillion euros.

The S&P 500 Index jumped 25.23 points, or 2.10 percent, to trade at 1,226.09 at 3:28 p.m. ET. The Dow Jones Industrial Average rallied 187.32 points, or 1.64 percent, to trade at 11,584.32. The Nasdaq Composite rose 1.61 percent.

Earlier, U.S. stocks were trading higher on favorable earnings reports from Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC), up 5.57 percent and 10.28 percent, respectively.

In the afternoon session, U.S. stocks and global risk assets received another boost on news that European leaders are expanding bailout fund EFSF to two trillion euros. The previous size of the fund was only 440 billion euros.

“France and Germany have reached agreement to boost the Eurozone's rescue fund to €2tn as part of a ‘comprehensive plan’ to resolve the sovereign debt crisis that the Eurozone summit should endorse this weekend,” reported The Guardian, citing EU diplomats.

The fund’s power will be expanded to two trillion euros through “additional levers enabling it to offer first-loss guarantees for bondholders, be they private or public.”

Moreover, France and Germany agreed “that Europe's banks should be recapitalised to meet the nine percent capital ratio that the European Bank Authority is demanding.”