As fears of EU market subside, stocks reach highest levels since recession

NEW YORK - The last time the stock market was this high, the Great Recession had just started, and stocks were pointed toward a headlong descent.

But on Thursday, the Dow Jones industrial average hit its highest mark since December 2007, and the Standard & Poor's 500 index soared to its highest level since January 2008 in a rally that seemed destined to mark a milestone: American stocks have come almost all the way back.

A long-anticipated plan to support struggling countries in the European Union provided the necessary jolt, and the gains were extraordinarily broad. All but 13 stocks in the S&P index were up. European markets surged, too.

"There's just a sea of green," said JJ Kinahan, TD Ameritrade's chief derivatives strategist. "It's pretty fun."

At the start of 2008, the U.S. economy was already a month into recession, though most people scarcely knew it at the time. The S&P had recently hit an all-time high, and the unemployment rate was 5 percent, compared with the current 8.3 percent.

Then, in March 2008, the investment bank Bear Stearns collapsed under the weight of bad mortgage bets, and investors began to sell. In September, the full financial crisis took hold as Lehman Bros. filed for bankruptcy, banks stopped lending to each other, and investors began dumping stocks in earnest.

By March 2009, the S&P had dropped 57 percent from its high to hit a 12-year low of 676.

Since then, the index has been on an impressive – if often bumpy – climb. Helping to power it was unprecedented support from the Federal Reserve and record profits at big U.S. companies.

Although stocks have rebounded, the broader economy is still lagging. But Barry Knapp, head of U.S. equity strategy at Barclays Capital, said stocks tend to anticipate the future economy rather than reflecting current conditions.

"It can be a misleading forecasting tool, but sometimes it's telling you something significant," he said. "It's entirely possible the stock market is telling us that there is a better economic environment out there."

The market's rise did hit a few roadblocks, however, most notably in the summer of 2011, when Congress was squabbling over raising debt limits and fear was mounting that the United States could be headed into another recession. Over one four-day stretch in August, the Dow rose or fell by 400 points each day, the first time that has happened. The S&P 500 ended flat for 2011.

Then earnings rose again this year, fears over European debt crisis receded and stocks soared again. For the first three months of 2012, the Dow was up 8 percent and the S&P 12 percent, in each case the best start since the great bull market of the 1990s.

Thursday's rally got momentum after the president of the European Central Bank unveiled a new program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs.

That was just what investors needed to hear. The S&P 500 index jumped 28.68 points to 1,432.12. The Dow Jones industrial average surged 244.52 points to 13,292.00.

The Nasdaq composite index also reach a milestone, gaining 66.54 points to close at 3,135.81, its highest level in 12 years.

Germany's DAX and France's CAC-40 each rallied 3 percent. The gains were even bigger in Spain and Italy, the two largest countries to become caught up in the region's long-running government debt crisis. Spain's benchmark index soared 5 percent, Italy's 4 percent.