NEW YORK ? An unexpected interest rate cut in Europe and news that Greece will scrap a referendum on unpopular budget cuts sent the Dow Jones industrial average up more than 140 points Thursday, the second day of gains in a row.
The European Central Bank surprised markets early by cutting its benchmark interest rate a quarter of a percentage point, to 1.25 percent. The bank had increased its key rate twice this year, but that was before Mario Draghi took over as head of the bank this week. The announcement sent European stock indexes modestly higher as investors hoped that lowering borrowing costs would help prevent a recession in Europe.
Buying intensified in the early afternoon after Greek Prime Minister George Papandreou abandoned his effort to put package of austerity measures to a public vote. A "no" vote could have caused chaos in the European financial system by leading to a messy default on Greece's debt.
Investors and other European nations were shocked by Papandreou's announcement Monday that he would call a referendum on a financial rescue package worked out just last week after months of negotiations between the Greek government and international lenders.
The Dow lost 573 points the first two days of this week on fears that the measure would be defeated and push Europe closer to a financial crisis. The prime minister was in an emergency meeting Thursday after members of his government called for him to step down.
The Dow Jones industrial average gained 148 points, or 1.2 percent, to 11,983 as of 1 p.m. Eastern. It had been up 100 point at noon, before the news came out that that Greek referendum would be canceled.
The S&P 500 rose 15, or 1.2 percent, to 1,253. The Nasdaq composite added 35, or 1.3 percent, to 2,675.
Reports on the U.S. economy also lifted stocks. The number of people who applied for unemployment benefits last week dipped to the lowest level in five weeks. The number of applications fell below 400,000 for only the third time since April. That's a sign layoffs are easing. Companies also made more orders to U.S. factories in September.
Companies reporting quarterly earnings were among those making the biggest gains.
Estee Lauder Cos. jumped 15 percent, the top stock in the S&P 500. The company's quarterly earnings soared 46 percent on strong global sales, which beat analysts' expectations. The company also raised its annual earnings outlook.
Alpha Natural Resources rose 12 percent. The coal producer's profit more than doubled, helped by its acquisition of rival Massey Energy Co. and higher prices for coal used to make steel. The results topped estimates.
Qualcomm Inc. gained 7 percent, after the chip-maker for mobile phones said rising smartphone demand helped it post results that were stronger than analysts were expecting.
Kraft Foods Inc. rose 4 percent. The food company, whose brands include Nabisco and Maxwell House, reported a 22 percent jump in income thanks to higher prices on some of its products. Kraft also raised its full-year profit forecast.
Kellogg Co. dropped 7 percent after its quarterly earnings fell even further than analysts had expected. The cereal and snack maker was hit by higher costs for ingredients.
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