NEW YORK (Reuters) - Stocks in the U.S. and Europe soared and the euro rose on Thursday after the European Central Bank announced a bond-buying program to deal with the euro zone's debt crisis.
ECB President Mario Draghi largely confirmed market expectations for potentially unlimited purchases of short dated bonds of countries implementing approved fiscal austerity programs and also said the central bank would legally rank equally with private investors buying the same bonds.
Draghi justified the plan on the grounds that it would help the central bank's monetary policy complement economic restructuring by euro zone governments and restore economic growth.
Spanish and Italian bond yields fell, while U.S. Treasury and German bund yields jumped as the need for safe-haven investments fell with the ECB plan seen reducing the risk of a euro zone break up.
"Draghi with his debt purchase details this morning will move Europe from a bad to a good equilibrium," said Chris Rupkey, financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The U.S. Dow Jones industrial average .DJI was up 217.11 points, or 1.66 percent, at 13,264.59 late afternoon in New York. The Standard & Poor's 500 Index .SPX was up 26.43 points, or 1.88 percent, at 1,429.87, its highest level in four years.
The rise in U.S. stocks was helped by reports showing American companies added staff in August at the fastest clip in five months and an improvement in service sector employment. A third report showed new claims for jobless benefits fell last week to the lowest level in a month.
U.S. private employers added a stronger-than-expected 201,000 jobs in August, according to payrolls processor ADP, while the government said new claims for jobless benefits fell last week to the lowest level in a month.
The data was the latest to hint U.S. economic growth may be recovering, and it raised chances the government's more comprehensive monthly jobs report on Friday could be stronger than economists expect.
"Today's U.S. reports all beat expectations to put a positive spin on the risks as we approach Friday's U.S. jobs data," said Michael Englund, chief economist at Action Economics in Boulder, Colorado. �
The pan-European FTSEurofirst 300 .FTEU3 index rose 2.4 percent to 1,104.76, with trading volume hitting a three-month high at 285 million shares.
The euro hit a two-month peak against the U.S. dollar in choppy trading after the ECB unveiled its plan to contain the euro zone debt crisis.
In late afternoon trading Thursday, the euro was around $1.2640, after seeing a high around $1.2650. The euro's gains were tempered after the Draghi said the ECB had cut its growth forecast for the euro zone.
The euro zone economy will probably contract more than previously expected this year, according to new ECB staff forecasts, which also raised the bank's outlook for inflation for 2012/2013.
Ten-year Spanish bond yields fell to 6.1 percent, a level not seen since June 11, while two-year bonds fell 10 basis points to 3.07 percent.
Spain sold 3.5 billion euros of shorter term debt and France
shifted 7.98 billion euros of five-, 10- and 15-year bonds, with both auctions resulting in lower yields than at previous sales.
Italian 10-year yields fell to 5.32 percent.
German 10-year Bund yields were up 8 basis points at 1.5 percent on Thursday as the need for safe haven investments diminished.
U.S. Treasuries yields rose on as traders upped bets that the rise in monthly payrolls in the government's report due Friday would be above expectations while the news from the ECB was also supportive.
Benchmark 10-year note prices were last down 23/32 in price to yield 1.68 percent, up from 1.60 percent late on Wednesday. Thirty-year bonds fell 1-30/32 in price to yield 2.80 percent, up from 2.71 percent.
Reporting By Edward Krudy; editing by Clive McKeef