-- Stocks jumped as hopes grew Thursday that a plan to tackle the European debt crisis will survive.
The Dow Jones industrial average closed up about 208 points, gaining 1.8%. The S&P 500 climbed 1.9%, while the Nasdaq composite clode up 2.2%.
In Athens, Greek Prime Minister George Papandreou finally scrapped plans for a debt bailout referendum that could have roiled markets.
"Markets have rallied …. on the expectation that the referendum will be cancelled," said Louise Cooper, markets analyst at BGC Partners.
The European Central Bank also surprised markets early Thursday by cutting its benchmark interest rate to 1.25% under new chief Mario Draghi to boost weakening growth in a struggling eurozone.
Markets were thrown into turmoil Monday after Papandreou made his referendum proposal. It horrified Greece's international partners and creditors, triggering market worries that Greece may default on its debts and exit the eurozone.
Earlier, French President Nicolas Sarkozy and German Chancellor Angela Merkel of Germany acknowledged the once-unthinkable: the possible exit of Greece from the euro.
Saying that Europe had "done everything we could" to keep Greece in the eurozone, Sarkozy told a joint press conference: "Now it is up to them to decide if they want to stay in the euro with us."
European leaders then drew a line in the sand, saying the referendum would determine whether Greece stays in the 17-nation grouping that uses the euro common currency — and vowing Athens will not get new aid until the result is in.
Though Greece's political developments were the main point of interest in the markets, investors are keeping a close watch on the French resort of Cannes where the Group of 20 leaders from the industrial and developing world are meeting.
This week's shockwaves from Greece have had ripple effects all round Europe.
The government of Italian Premier Silvio Berlusconi teetering as well after its failure to come up with a credible plan to deal with its dangerously high debts, while Portugal's prime minister says he wants to negotiate more flexible terms for the implementation of measures attached to his country's —78 billion ($107.5 billion) bailout.
In Cannes, President Barack Obama pledged world leaders would flesh out details of a plan to resolve the European financial crisis.
Markets will also be monitoring Mario Draghi as he holds his first press conference as the new head of the European Central Bank. He's under pressure to signal it will continue buying government bonds to keep Europe's debt crisis from worsening.
A surprise interest rate cut has also not been ruled out as Draghi takes over. He faces an array of problems: weakening growth, excessive inflation and uncertainty over whether a bailout for heavily indebted Greece will go through or be derailed by a proposed referendum.
Markets are waiting to see if Draghi will be more aggressive in supporting troubled governments than predecessor Jean-Claude Trichet, whose eight-year term expired. The bank's program to buy government bonds drives down the borrowing costs that Italy and Spain face in bond markets. High interest rates on borrowing drove Greece, Ireland and Portugal to take bailout loans from other eurozone governments.
Earlier in Asia, Hong Kong's Hang Seng retreated 2.55 to close at 19,242.50. South Korea's Kospi lost 1.5% to 1,869.96 and Australia's S&P/ASX 200 shed 0.3% to 4,171.80.
Japanese markets were closed for a national holiday. Mainland Chinese shares rose, with the benchmark Shanghai Composite Index gaining 0.2% to 2,508.09.