By Kate Gibson

U.S. stocks made their biggest one-day gain in 13 months Monday, re-establishing gains for the year, after an agreement on a nearly $1 trillion rescue plan to stabilize Europe lured investors back to a badly shaken market.

After last week's wipeout of gains made in 2010, the Dow Jones Industrial Average (DJI) closed up 404.71 points, or 3.9%, to 10,785.14, its biggest daily gain since March 2009, and enough to bring it safely back into positive territory for the year.

"Shorts are caught in a big way today after Friday's poor action and thinking that the EU would be too slow to react. It's not a new ball game today, but it is a new inning," said Elliot Spar, market strategist at Stifel, Nicolaus & Co.

So-called short investors bet that a stock price will fall.

The European Union and the International Monetary Fund, shaken into action as the euro skidded to a 14-month low, late Sunday agreed to commit nearly $1 trillion toward a bailout fund to back European nations hit by debt woes. Aiming to stem any contagion arising from debt-ridden Greece was the catalyst for the Europeans' action.

Also, the Fed reopened a program that funnels dollars overseas through foreign central banks, which can then lend the currency to banks in their countries.

All of the Dow's 30 components climbed. Caterpillar Inc. (CAT) shares rallied 7.4%, leading the index of established companies, followed by 6.9% gains in shares of Bank of America Corp. (BAC) and General Electric Co. (GE).

Also bolstering the blue chips, Boeing Co. (BA) rose 6.4% after Goldman Sachs hiked its rating on the commercial aircraft-manufacturer to conviction buy from neutral.

Shares of discount giant Wal-Mart Stores Inc. (WMT) lagged the broader index, up just 0.3%.

The S&P 500 Index (SPX) closed up 48.85 points, or 4.4%, to 1,159.73, with all 10 of its industry groups rising.

Industrials and financials, two of the hardest hit by investor jitters over Europe's potential debt crisis, led the gains on the S&P 500.

Aflac Inc. (AFL) shares rallied 12%. Shares of the insurer fell sharply last week after the company said it held nearly $2 billion in bonds tied to financial institutions in Greece and Portugal.

Genworth Financial Inc.'s (GNW) shares gained nearly 13%, while Marshall & Ilsley Corp. (MI@) shares rallied 12%.

"While the volatility of last week has reawakened memories of the awful fourth quarter of 2008, it also appears to have spurred European policy makers into decisive and united action," said David Kelly, chief market strategist at J.P. Morgan Funds.

The Nasdaq Composite Index (RIXF) gained 109.03 points, or 4.81%, to 2,374.67 as the index's tech stocks, hit hard during last week's rout, came roaring back.

Apple Inc. (AAPL) shares closed up 7.7%. Hewlett-Packard Co. (HPQ) shares added 5.1%. Google Inc. (GOOG) gained 5.8%.

For every stock on the decline, about 18 rose on the New York Stock Exchange, where nearly 1.9 billion shares traded. Composite volume exceeded 7.2 billion.

Among the few notable decliners, Dean Foods Co. (DF) shares fell 28% after the diary goliath reported a sharply lower first-quarter profit and a lackluster earnings outlook. .

Europe unified

Markets also rocketed higher in Europe, where shares surged more than 6%, in their best single-day performance since late 2008. .

"At long last, the European Union is putting its money where its mouth is," said Jack Ablin, chief investment officer at Harris Private Bank. "At the very least this buys them a lot of time. I don't think Greece is going to have to come back to the bond market anytime soon."

The European aid package includes new loan facilities. And the European Central Bank said it will buy bonds in the secondary market to ensure liquidity for "dysfunctional" market segments.

During the U.S. trading session, the euro moderated its advance against the U.S. dollar (CUR_EURUSD), trading $1.2781 after crossing above the $1.30 level.

"The 'save the euro' campaign announced yesterday worked for just a few hours as the euro is moving back to unchanged," noted Peter Boockvar, equity strategist at Miller Tabak.

"As long as the European Central Bank is in the new game of printing money and buying sovereign debt, the euro will remain under pressure," he said.

Treasury prices fell sharply, pulling yields on the benchmark 10-year note (UST10Y) up 11 basis points at 3.54% -- their worst day since December.

Gold futures fell after three days of gains, dropping $9.60 to end at $1,200.80 an ounce, while oil prices climbed $1.69 to $76.80 a barrel.

Markets around the world had plunged last week as worries mounted that Greece's debt troubles would spread across Europe and derail the global recovery.

The Dow declined 5.7% last week. The manic period reached its most crazed point on Thursday when the Dow fell nearly 1,000 points before recovering more than half of the loss before the final bell.

 
 
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