A plan to revive Europe's sagging economy rippled through the financial world on Thursday, setting off a rally in the stock market that wiped out its losses for the new year.
The pledge by the European Central Bank to spend 1.1 trillion euros on bonds knocked down government borrowing rates across Europe and drove the euro to its lowest level against the dollar in 11 years. For investors, the long wait for action in Europe was over.
“It's all about the ECB today,” said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management. “This is a very positive development. They have a reputation of overpromising and under-delivering, and today they delivered.”
The Standard & Poor's 500 index jumped 31.03 points, or 1.5 percent, to close at 2,063.15. That nudged it into positive territory for the year, up 0.2 percent.
The Dow Jones industrial average climbed 259.70 points, or 1.5 percent, to 17,813.98 while the Nasdaq climbed 82.98 points, or 1.8 percent, to 4,750.40.
In it much-anticipated move, the ECB announced that it would start buying 60 billion euros worth of government and private bonds every month, slightly more than what many in the markets anticipated. The central bank said the program will run 18 months, from this March until September of next year, but left open the option of extending the program if necessary.
That wiggle room is crucial, said Joseph Quinlan, chief market strategist at U.S. Trust. Turning around an economy often takes longer than people think. The Federal Reserve launched its first bond-buying effort at the end of 2008 and kept expanding it over the following years.
“The biggest positive is that it appears to be open-ended,” Quinlan said. “As we learned in the U.S., it takes time for this to work.”
Major markets in Europe ended the day with solid gains. Germany's DAX rose 1.3 percent and France's CAC-40 gained 1.5 percent. Britain's FTSE 100 picked up 1 percent.
Prices for government bonds across Europe jumped, pushing yields to record lows. The yield on the 10-year German bond hit 0.39 percent. Borrowing costs for governments in France, Italy and other countries also reached new lows.
“It's hard not to see this as a positive, but there will be lingering doubts,” said Chris Rupkey, chief financial economist at the Bank of Tokyo, in a note to clients. “Is there even enough debt for them to buy?”
The euro fell further against the U.S. dollar on Thursday, reaching $1.13. The euro hasn't been that cheap since September 2003, according to FactSet data. A weakened euro makes European goods cheaper, which could help boost exports from the region and lift inflation from dangerously low levels.
The dollar index, which measures the greenback against a basket of major currencies, climbed 1.6 percent, putting it up 4.6 percent for the month.
A strong dollar has its drawbacks, especially for big U.S. corporations that depend on overseas sales. It raises prices for U.S. products in foreign countries, and means the revenue that U.S. companies collect in other currencies translates into fewer dollars when they bring the money home. A strong dollar, in other words, can pinch profits. For companies in the S&P 500 index, roughly half of total revenue comes from outside the United States.
The strong dollar, for example, hurt Johnson & Johnson in the fourth quarter, and triggered a sell-off in its shares on Tuesday.
Big-name companies turning in results on Thursday were spared damage from currency fluctuations, however. Southwest Airlines reported higher quarterly profit and revenue than Wall Street expected. The carrier said lower prices for jet fuel helped reduce costs, and estimated that it should save around half a billion dollars on fuel during the first three months of 2015. Southwest jumped $3.52, or 8 percent, to $45.35, making it the biggest gainer in the S&P 500.
Union Pacific's stock chugged ahead, rising $5.43, or 5 percent, to $119.83. Its fourth-quarter profit surged 22 percent as the railroad operator hauled more freight.
In the commodity markets, most precious and industrial metals settled higher. Gold rose an even $7 to $1,300.70 an ounce, while silver picked up 17 cents to $18.36 an ounce. Copper slipped 3 cents to $2.58 a pound.
U.S. government bond prices dipped, shoving the yield on the 10-year Treasury to 1.88 percent from 1.87 percent late Wednesday.
The price of oil fell following news of a large increase in U.S. crude stocks. The Energy Department said oil and petroleum fuel supplies have reached their highest level since 1990. Benchmark U.S. crude fell $1.47 to close at $46.31 a barrel in New York. Brent crude, the international benchmark, fell 51 cents to $48.52 in London.
In other futures trading on the New York Mercantile Exchange:
— Wholesale gasoline rose 0.5 cents to close at $1.331 a gallon.
— Heating oil rose 0.8 cents to close at $1.638 a gallon.