U.S. equity markets rallied overnight, even after the Financial Times reported Standard & Poor's threatened European AAA sovereign ratings with a credit watch negative, going against investor optimism at the start of what could be a vital week for Europe's debt crisis.
By the close the Dow was 78 points higher at 12,098, with the NASDAQ 29 points stronger to 2656.
After a few hours of discussions at a meeting in Paris, Germany's Angela Merkel and France's Nicolas Sarkozy said in a joint news conference that their proposal for budget discipline will include a necessary change to the EU treaty, despite some objections by member states.
The plan will provide for automatic penalties for governments that fail to keep their deficits under control, as well as for the launch of a permanent bailout fund for debt-stricken member nations.
Sarkozy and Merkel said they would send off their plan that they expect will prevent another debt crisis on Wednesday, ahead of the crucial EU summit on Friday. They hope to attain approval from all 27 members of the European Union to adopt the pact.
The Franco-German plan has provided hope for investors that the ECB will be prepared to provide interim support to EU debt markets, as Italy's yields on 10-year bonds also fell Monday to below 6% after the government announced a 30 billion euro austerity program. The country's 10-year yield has been around the dangerous 7% mark for weeks.
In corporate news, value retailer Dollar General (NYSE:DG) said third-quarter net income rose by a third on a 12% increase in sales. For the quarter that ended October 28, earnings reached $171.2 million, or 50 cents per share, from $128.1 million, or 37 cents a year earlier. Sales reached $3.6 billion from $3.22 billion a year ago.
Analysts were expecting earnings of 47 cents per share on $3.57 billion of sales, according to FactSet Research. The company, which plans to buy back $500 million of stock, increased its estimate of earnings for its full fiscal year to a range of $2.29 to $2.32 per share. Analysts are expecting $2.29 per share.
Commercial Metals (NYSE:CMC) has rejected a hostile $15 per share bid from activist investor Carl Icahn who holds a 10% stake in the scrap metals firm.
Cloud computing firm SuccessFactors (NASDAQ:SFSF) is being acquired by German software giant SAP (NYSE:SAP) for $3.4 billion in cash. The $40 per share deal represents a 52% premium over Friday's closing price for SuccessFactors.
Goldcorp (NYSE:GG)(TSE:G) said it will increase its annual dividend by 32% to 54 cents per share. The Vancouver-based gold miner said the increase will be reflected in its monthly dividend, payable to shareholders of record as of December 16. The company said it will continue to review dividend levels in the future.
On the economic front in the US, factory orders for October slipped 0.4% - in line with economist expectations.
Meanwhile, November's ISM Non-Manufacturing Index fell to 52, from 52.9 the prior month. Economists were expecting a reading of 53.4.
In NYMEX futures trading, crude edged up 0.04% to $101 a barrel while gold fell 1.47% to $1,725.60 an ounce.
In Europe, markets closed higher, with the FTSE 100 up 0.28% and the DAX up 0.42%.