Stocks, the Canadian dollar and commodities all soared Friday in the wake of an agreement among European leaders to a set of prescriptions for their debt crisis.

But analysts questioned how long the rally would hold.

In Toronto, the S&P/TSX composite index closed up 171.86 points, or 1.5 per cent, at 11,596.56.

In New York, the Dow Jones industrial average jumped 277.83 points, or 2.20 per cent, at 12,880.09. The Standard & Poor's 500 index rose 33.12 points, or 2.49 per cent, at 1,362.16. The Nasdaq composite index gained 85.56, or three per cent, at 2,935.05.

The loonie jumped 1.40 cents to 98.22 cents US, thanks in part to surging commodity prices.

The August crude oil contract closed up $7.27 at $84.96 US on the New York Mercantile Exchange. Crude had fallen to near eight-month lows and was down from $106 US a barrel less than two months ago amid signs that economic growth and oil demand had been slowing in the U.S., Europe and China.

The bullion contract for August delivery gained $53.80 to $1,604.20 US an ounce and July copper spiked 16 cents to $3.50 US a pound.

'Time will tell how long this risk rally lasts.'—BMO Capital Markets

Leaders in Brussels unveiled a plan to bail out banks directly from a financial rescue fund. They also said they would ease austerity measures that are causing political unrest and agonizing recessions in Greece and other nations that have gotten financial lifelines.

European Council President Herman Van Rompuy called the agreement a "breakthrough."

The decision is a victory for Spain and Italy, whose borrowing costs have risen to near unsustainable levels despite their efforts to cut spending and reform labour markets.

Markets had grown increasingly doubtful about the ability or willingness of the European Union to take action that would avert a broadening crisis.

"All of a sudden we're not worried about the Spanish and Italian banks going bankrupt over the weekend," said Phil Flynn, an oil analyst with Price Group.

In Europe, Germany's DAX closed 4.33 per cent higher, while the CAC-40 in France rose 4.75 per cent. The FTSE 100 index of leading British shares gained 1.40 per cent.

"It's Friday, month-end, quarter-end, a long weekend. The EU has fired a shot across the bow in an attempt to fix everything in one broad brush stroke," said a report from BMO Capital Markets.

"Time will tell how long this risk rally lasts, but for today the markets are clearly celebrating."