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Wall Street finished a volatile trading session with gains as traders managed to shake off continued worries that Europe's debt crisis is escalating and health-care stocks rallied.
The Dow Jones Industrial Average gained 85.2 points, or 0.71%, to 12,068, the S&P 500 rose 7.9 points, or 0.63%, to 1,261 and the Nasdaq Composite climbed 9.1 points, or 0.34%, to 2,695.
The health sector fared best on the day, with companies like Pfizer (PFE) posting big gains. However, financial and industrial shares lagged throughout the entire session. Indeed, Bank of America (BAC) and Caterpillar (CAT) were two of the worst performing stocks on the Dow. Energy futures rallied as well, while volatility ticked lower.
The drama sparked by Europe's deepening sovereign debt crisis that has driven Wall Street higher and lower in recent weeks took the spotlight once again on Monday.
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The Federal Reserve said Monday about 50% of top U.S. banks are still lending to their European counterparts. This is a significant development because European banks have been slammed recently by concerns over their exposure to beleaguered sovereign debt of countries like Greece, Italy, Spain and Portugal. Financial institutions need access to capital to stay in business, as is highlighted by the recent bankruptcy of MF Global, which saw its access to credit dry up as worries mounted over its $6.3 billion exposure to European debt.
Additionally, Dow Jones Newswires reported late Monday that European leaders plan on finalizing legal work on the region's bailout fund by November, and implement the changes by December. European officials agreed in late October to boost the fund's firepower in light of the escalating debt crisis.
Also on the European front, Greek leaders were able to forge an agreement to form a national unity government on Sunday in which current Prime Minister George Papandreou will step down and both the ruling party and the opposition would be represented. The deal would see the unity government running the embattled nation until it receives a crucial bailout from international lenders, including the European Union, at which point elections would be called to pick out a new leader. The agreement and the enacting of measures to receive billions of euros in rescue aid would stave off a bailout that market participants had feared would damage European banks, and potentially the global economy.
However, the crisis that started in the periphery of the euro zone may already be spreading straight into the 17-member currency bloc's core. Italy has seen its public debt balloon to 119% of its economic output in 2010 from 106% in 2008, raising the specter that it too may need assistance if it doesn't quickly enact reforms aimed at shrinking its public sector. However, Italian Prime Minister Silvio Berlusconi has seen his majority in parliament teeter, paralyzing his ability to push the reforms through the country's lawmaking body in a time when the European Union is ramping up pressure to enact the changes.
As a result of the tumult, the return investors demand to purchase the country's benchmark 10-year note surged to the highest level since the formation of the euro, according to an analysis by FOX Business. That compounds the problem because higher yields make it pricier for the country to borrow in the private market.
European blue chips fell 0.68%, while the euro slid 0.72% to $1.374. The U.S. dollar rose 0.2% against a basket of six world currencies.
Energy markets climbed amid renewed concerns about Iran, potentially a destabilizing factor in the Middle East. Indeed, oil closed at its highest level since July 29.
The benchmark American crude oil contract rose $1.26, or 1.3%, to $95.52 a barrel. Wholesale RBOB gasoline soared 6 cents, or 2.4%, to $2.73 a gallon.
Gold climbed $35.00, or 2%, to $1,791 a troy ounce. The yield on U.S. government debt was modestly lower. The benchmark 10-year Treasury yields 2.008% from 2.040%.
Dynegy (DYN) is mulling a bankruptcy filing for its holding company, according to a report by The Wall Street Journal. Shares of the electrical sales company were off 10% on the day, trimming heavier losses.
European blue chips slid 0.73%, the English FTSE 100 fell 0.3% to 5,511 and the French CAC 40 stumbled 0.66% to 5,927.
In Asia, the Japanese Nikkei 225 dropped 0.39% to 8,767 and the Chinese Hang Seng slumped 0.83% to 19,678.
Charles Brady contributed to this report.