Germany also voted to expand the powers of Europe's bailout fund, reassuring investors that lawmakers were working to get that region's debt crisis under control. Bank, which would have the most to lose if Greece were to default, rose more than the rest of the market. JPMorgan Chase & Co. jumped 4.3 percent, the most of any stock in the Dow Jones industrial average.
The Dow shot up 215 points in early trading. The Standard & Poor's 500 index and the Nasdaq were also sharply higher.
Several strong reports on the U.S. economy encouraged investors to buy stocks. First-time applications for unemployment benefits fell last week to 391,000. That's the lowest level since April 2 and also the first time applications have fallen below 400,000 since Aug. 6. The big drop suggests that layoffs are decreasing.
The government also increased its estimate of economic growth in the April-June period. The Commerce Department said the economy grew at a 1.3 percent annual rate in the second quarter, up from its previous estimate of 1 percent. It attributed the increase to growth in consumer spending and trade.
"This gives us a little more confidence that maybe the economy will muddle through here as we go through all these challenges," said Rob Lutts, president and chief investment officer of Cabot Money Management.
The Dow Jones industrial average jumped 213 points, or 1.9 percent, to 11,223 as of 10:15 Eastern. It had been up as many as 260 points shortly after the opening bell.
The Standard & Poor's 500 index rose 19 points, or 1.6 percent, to 1,170. All 10 company groups that make up the S&P rose.
The Nasdaq composite index rose 23, or 1.2 percent, to 2,515.
Bank stocks rose sharply as worries eased about Europe's debt problems. Genworth Financial Inc. soared 7.2 percent, the most of any company in the S&P 500 index. Janus Capital Group Inc. rose 5.3 percent and Hartford Financial Services Group Inc. rose 4.9 percent.
The measure approved by German lawmakers to expand the region's bailout fund must be approved by all 17 countries that use the euro. The plan will allow the bailout fund to buy government debt and lend money to troubled European countries. Finland approved the measure Wednesday.
Advanced Micro Devices Inc. fell 9 percent Thursday, the most of any stock in the S&P 500, after the company cut its revenue and earnings forecast for the third quarter, saying it was having problems getting its chips made.