Dow jumps 208 after Greek referendum is scrapped

The Dow Jones industrial average jumped 208 points Thursday after Greece scrapped a referendum on unpopular budget cuts and the European Central Bank unexpectedly cut interest rates. It was the second straight day of big gains in the stock market.

The European Central Bank surprised markets by cutting its benchmark interest rate a quarter of a percentage point, to 1.25 percent. The bank had increased its key rate twice this year, but that was before Mario Draghi took over as head of the bank this week. The announcement sent stocks higher as investors hoped that lowering borrowing costs would help prevent a recession in Europe.

Buying intensified in the early afternoon after Greek Prime Minister George Papandreou abandoned his effort to put package of austerity measures to a public vote. A "no" vote could have caused chaos in the European financial system by leading to a messy default on Greece's debt.

Investors and other European nations were shocked by Papandreou's announcement Monday that he would call a referendum on a financial rescue package worked out just last week after months of negotiations between Greece and its international lenders.

The Dow lost 573 points the first two days of this week as investors feared that Europe's plan to preserve its currency union was in jeopardy. Markets in the U.S. and Europe have been highly sensitive to headlines out of Europe as leaders there try to avoid a financial calamity. Investors have become fatigued as various efforts to resolve the situation seem to continually run into trouble.

"Today it looks like a deal in Europe is more likely and that's making the market positive, but who knows what people will think tomorrow," said Uri Landesman, president of Platinum Partners.

The Dow Jones industrial average gained 208.43 points, or 1.8 percent, to 12,044.47. The average closed above 12,000 for only the third time since the start of August. The Dow last closed above that level on Friday. Even with the gain of 386 points over the last two days, the Dow is still 1.5 percent below where it closed on Friday.

The S&P 500 rose 23.25, or 1.9 percent, to 1,261.15. The Nasdaq composite added 57.99, or 2.2 percent, to 2,697.97.

Reports on the U.S. economy also lifted stocks. The number of people who applied for unemployment benefits last week dipped to the lowest level in five weeks. The number of applications fell below 400,000 for only the third time since April. That's a sign layoffs are easing. Companies also made more orders to U.S. factories in September.

"All of the economic data is pointing to a slow-growing economy, and putting the recession fears to rest," said Bill Stone, chief investment strategist at PNC Asset Management Group.

Companies reporting quarterly earnings were among those making the biggest gains.

Estee Lauder Cos. jumped 18 percent, the top stock in the S&P 500. The company's quarterly earnings soared 46 percent on strong global sales, which beat analysts' expectations. The company also raised its annual earnings outlook.

Alpha Natural Resources rose 13.3 percent. The coal producer's profit more than doubled, helped by its acquisition of rival Massey Energy Co. and higher prices for coal used to make steel. The results topped estimates.

Qualcomm Inc. gained 7.5 percent, after the chip-maker for mobile phones said rising smartphone demand helped it post results that were stronger than analysts were expecting.

Kraft Foods Inc. rose 3.3 percent. The food company, whose brands include Nabisco and Maxwell House, reported a 22 percent jump in income thanks to higher prices on some of its products. Kraft also raised its full-year profit forecast.

Kellogg Co. dropped 7.6 percent after its quarterly earnings fell even further than analysts had expected. The cereal and snack maker was hit by higher costs for ingredients.