North American stock markets opened sharply higher on Tuesday amid optimism that a European bailout deal can be reached.

Reports suggest the deal could include a Greek default on 50 per cent of its debts, a big expansion of a European stabilization fund and a a recapitalization of banks at risk.

Greece's finance minister also said his country would receive the next round of bailout loans in time to avoid a default. 

Buoyed by the news, the S&P/TSX composite index surged more than 300 points at one point during the day. It ultimately finished at 11,821.1, up 113.9 from Monday. Tuesday's gains came after a Monday in which the index gained 244 points and last week's drop of more than 900 points.

On Wall Street, the Dow Jones industrial average also could not hang on its 300-point intraday gains. The Dow closed up 146.83 at 11,190.69.

Commodity prices gained ground as investors seemed to believe the bailout could help avoid an economic slowdown. The price of light sweet crude rose $4.21 to finish at $84.45 US per barrel.

The Canadian dollar, which is closely tied to the price for oil and commodities, gained 0.75 of a cent to reach 98 cents US.  The Euro and British pound were also higher as investors reversed course from last week's flight to the relative safety of U.S. dollar.

Investors also jumped back into gold. On the New York Mercantile Exchange, gold for September rose 58.10 to settle at $ 1650.60 US an ounce.

September silver also enjoyed a bounce, climbing $1.57 to finish regular trading at $31.50 US an ounce.

Enthusiasm for the potential bailout deal helped boost European stocks indices.

The U.K.'s FTSE 100 enjoyed its biggest one-day since May 2010, adding four per cent. France's CAC 40 index rose by 5.7 per cent, while Germany's Dax added 5.3 per cent.

 Earlier,  Japan's Nikkei 225 shot up 2.8 per cent to close at 8,609.95, a day after ending at its lowest level since April 2009. South Korea's Kospi rallied 5 per cent to 1,735.71. Hong Kong's Hang Seng jumped 4.2 per cent to 18,130.55.

with files from The Associated Press