Stock rally intensifies: Dow jumps 200 points

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NEW YORK (CNNMoney) — U.S. stocks soared Friday, with the Dow jumping more than 200 points, as investors cheered a deal among European leaders to help struggling eurozone banks.

At the two-day European Union summit in Brussels, European leaders struck a “breakthrough” deal early Friday aimed at easing the recapitalization of banks.

Expectations were so low heading into the summit, that the surprise announcement sparked widespread euphoria. Investors were relieved to see sky-high bond yields in Spain and Italy retreat further away from 7% — the level that flashes bailout warning signals.

“We’re finally seeing a cause and effect,” said Frank Davis, director of trading at LEK Securities. “It’s a very positive sign that they can have a timely impact with some of the moves EU leaders make.”

Financial stocks led a broad rally across the globe.

In Paris, BNP Paribas and Credit Agricole both soared by about 5% and Societe Generale rose 2%. In Frankfurt, Commerzbank dropped 3.7% but Deutsche Bank surged 3.7%. In Madrid, Banco Santander jumped 4%.

In the U.S., Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley, and Goldman Sachs all rose between 2% and 5%.

The Dow Jones industrial average surged 218 points, or 1.7%. The S&P 500 gained 26 points, or 1.9%. The Nasdaq added 63 points, or 2.2%.

Optimism was further fueled by the latest reading on personal income in the United States, which increased in May by 0.2%, slightly higher than expected.

Friday also marks the end of the first half of the year. The three major indexes are on pace to close out with gains between 3% and 9%.

U.S. stocks closed in negative territory Thursday, after clawing back in the final hour of trading from much steeper losses.

World markets: The EU deal includes a mechanism to inject capital directly into banks, which may reduce what Investec bond analyst Elisabeth Afseth called “the bank-sovereign negative feedback loop.”

Afseth said the loop starts when a nation borrows to recapitalize its troubled banks, which then increases the country’s debt, pushes up bond yields, reduces bond values and forces banks to require even more capital.

“It’s an important step,” Afseth said, but she remains skeptical. “You have to be a little bit concerned where the funds are coming from. They could potentially run out quite quickly.”

EU leaders are hoping for implementation of the bank agreement by July 9.

European stocks surged in afternoon trading. Britain’s FTSE 100 added 2%, the DAX in Germany jumped 3.5% and France’s CAC 40 rallied 3.8%.

Asian markets ended higher. The Shanghai Composite closed just above breakeven, while the Hang Seng in Hong Kong surged 3.1% and Japan’s Nikkei gained 1.5%.

Economy: The Chicago Purchasing Managers’ Index for June came in at 52.9, slightly below expectations of 53, but up from 52.7 last month. Any reading above 50 signifies iexpansion in the region’s manufacturing sector.

The University of Michigan’s Consumer Sentiment Index for June came in below expectations at 73.2, compared with 74.1 in May.

Companies: Home builder KB Home reported a second-quarter loss Friday that was smaller than expected. That sent shares up more than 6% in early trading.

Several large companies that had a rough Thursday afternoon continued sinking early Friday.

Nike shares tumbled 9%, a day after the company reported quarterly earnings that missed analyst estimates. The stock fell in after-hours trading Thursday, when it was joined by other sportswear producers and retailers, including Under Armor, Lululemon Athletica and Dick’s Sporting Goods.

Shares of Research In Motion fell 14%, after the BlackBerry maker reported a wider-than-expected loss Thursday, and another delay of its long-awaited BlackBerry 10 operating system.

Ford shares slid 4%. The automaker on Thursday lowered its guidance based on poor performance by its international divisions.

Shares of gun manufacturing company Smith & Wesson surged after the company’s earnings beat profit expectations by a wide margin.

Currencies and commodities: The dollar fell against the euro, British pound and Japanese yen.

Oil for August delivery rose $4.25 to $81.91 a barrel.

Gold futures for August delivery jumped $48.40 to $1,598.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.66% from 1.58% late Thursday.