World stock markets moved sharply higher Thursday after European Union leaders meeting in Brussels agreed early in the day to a plan to address the region's debt crisis.

The Toronto Stock Exchange gained 279.38 points, or 2.3 per cent , to close at 12,465.44. The Dow Jones industrial average in New York rose 339.51 points or 2.86 per cent, higher to 12,284.59, after trading up as much as 415 points. The Dow hasn't closed above the 12,000 level since Aug. 1, 2011.

It was on course to make the biggest one-month gain in its history.

The S&P 500 gained 42.59 points, or 3.43 per cent, to 1,284.59, erasing its loss for 2011 and putting it on pace for the biggest monthly percentage gain since 1974.

The Nasdaq composite index gained 87.96 points, or 3.32 per cent, to 2,738.63.

In addition to news of a debt deal in Europe, the Dow was also boosted by new data showing the U.S. economy grew by 2.5 per cent last quarter.

Some analysts said the rally was overdone, considering the lack of details on how the plan will actually work.

"I think maybe this market probably is getting a little ahead of itself," said Fred Ketchen, manager of equity trading at Scotia Capital.

 "What we really need is some more clarification and that will take a lot of patience because it isn't going to come all of a sudden by snapping your fingers together."

'The summit is likely to be the corner from where the odds start to change in the right direction.' —Erik Nielsen, global chief economist at Unicredit

But others said the deal was a breakthrough.

"The summit is likely to be the corner from where the odds start to change in the right direction," said Erik Nielsen, global chief economist at Unicredit.

Total trade by Canadian businesses with the European Union — excluding the UK — is small but not insignificant at $50 billion, or six per cent of total Canadian trade.

But "stability in Europe is of particular importance to many Canadian businesses," Benjamin Reitzes, BMO Capital Markets senior economist said.

The Canadian dollar also rocketed higher on the news, gaining 1.36 cents to close above parity with its U.S. counterpart, at 100.88 cents US.

The loonie has not closed above parity in more than a month.

The euro gained strongly against the American dollar, rising more than two per cent to $1.42 US.

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'We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis,' France's President Nicolas Sarkozy says. (Yves Herman/Reuters)

European markets also rose, with London's FTSE 100 closing up 2.89 per cent, Frankfurt's DAX ahead by 5.35 per cent while the Paris CAC 40 gained 6.28 per cent.

Shares in Asia posted solid gains earlier in the day. Japan's Nikkei 225 index rose two per cent, South Korea's Kospi added 1.5 per cent and Hong Kong's Hang Seng gained 3.3 per cent.

December oil closed up $3.76, or 4.2 per cent, at $93.96 US per barrel.  Gold gained $24.20 to $1,747.70 US an ounce.

Plan boosts rescue fund

The deal means holders of Greek government-issued bonds would agree that those are worth only half what they were when issued and increases the European fund available to rescue troubled governments and banks by to €$1.4 trillion ($1.97 trillion Cdn). 

The fund is intended to serve as a firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.

French president Nicolas Sarkozy also said he planned to seek commitments from China to contribute to the enlarged rescue fund. Both China and Japan have indicated they are willing, but no amount has been set.

A commitment might be announced when the leaders of the G20 meet in Cannes, France, next week.

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European Commission President Jose Manuel Barroso says Europe 'must never find itself in this situation again.' (Virginia Mayo/Associated Press)

"We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis," Sarkozy told reporters after the meeting.

 "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."

The leaders have also asked the big European banks which hold dodgy Greek debt to raise €106 billion ($149 billion) by June,  "which sounds like a lot of money," David Baskin of Baskin Financial Services told CBC News, "but compared to the amount of money, for example, that was lost in the American mortgage fiasco it’s, relatively speaking, peanuts."

The important thing is, that it quantifies the amount, it puts it in a box, there’s no discussion about it anymore. Everybody knows what it’s going to be."

Baskin said markets were also buoyed by the fact that the EU leaders actually took the issue seriously enough to agree on a plan.

"At the very least they showed that they can do something, that it’s not going to be endless dithering to the end of time."

But most of all for the markets, said Baskin, the agreement allows what is technically a Greek default without triggering complex financial derivatives, called credit default swaps, that are designed to ensure bond holders from losses.

Large European banks are thought to be on the hook for potentially trillions in losses for backing that insurance, Baskin said, "and that’s a huge relief to the entire banking system."

The complex financial details of how to enact the deal have still to be worked out, and European leaders will have to do that quickly and skillfully in order to satisfy markets.

It's unclear whether the bailout fund changes will be enough to prop up Italian and Spanish banks, or whether the bond write-down will be enough to pull Greece from the brink.

Eurozone finance ministers are to work out the terms of the scheme in November.

Past attempts to contain Europe's two-year debt crisis have proved insufficient. Greece has been surviving on rescue loans since May 2010. In July, creditors agreed to take some losses on their Greek bonds, but that wasn't enough to fix the problem.

With files from The Canadian Press and The Associated Press