Stocks rallied on Monday as investor sentiment got a lift from a pledge by German and French leaders to tackle the euro-zone debt crisis.

The jump lifted the S&P 500 above its 50-day moving average for the first time since late July, a bullish technical signal that could trigger more buying. The next resistance levels are 1,200 and 1,230.

The S&P 500 is now up more than 10 percent from a low last Tuesday that took the index briefly into a bear market. The advance has been driven by short covering and managers buying stocks as they try to catch up to the sharp rally.

Investors continued to look to Europe for direction. German Chancellor Angela Merkel and French President Nicolas Sarkozy promised on Sunday to unveil a comprehensive new package to ease the euro zone's debt crisis.

If the market perceives results could fail to stop the spread of the sovereign debt crisis beyond Greece, it could spark a new wave of selling.

Still, a move to nationalize Franco-Belgian bank Dexia was seen as an indication that governments would step in and keep large lenders from going under.

The market gave Merkel and Sarkozy the benefit of the doubt. They know they have to come up with specifics, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the Dexia rescue showed European governments can act quickly and decisively, boosting hopes for real action ahead.

The Dow Jones industrial average <.DJI> added 267.17 points, or 2.40 percent, to 11,370.29. The S&P 500 <.SPX> gained 31.83 points, or 2.75 percent, to 1,187.29. The Nasdaq Composite <.IXIC> jumped 71.38 points, or 2.88 percent, to 2,550.73.

Despite the bullish technical signal regarding the 50-day moving average, other readings still point to a market in a downtrend. The S&P 500's weekly MACD --or moving average convergence-divergence, a gauge of relative performance -- is at levels comparable to February 2008, shortly before the market broke down.

Bank stocks advanced as the Franco-German pledge and the Dexia rescue helped ease concerns that U.S. lenders would be exposed to losses at their European counterparts.

The KBW bank index <.BKX> jumped 3.7 percent, with JPMorgan Chase & Co gaining 4 percent to $31.94 and Bank of America climbing 4.7 percent to $6.18.

Netflix Inc gave up its earlier sharp gains, when it hit a session high at $128.50, to slip 0.5 percent to $116.67 after its chief executive reversed an unpopular decision to separate the DVD rental business and online video streaming service.

Government offices and the Treasury bond market are closed for the U.S. Columbus Day holiday, so equities volume may consequently be lighter than usual.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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