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Stocks build on rally, Dow up more than 300 points

By Matthew Craft, Associated Press

Stocks are surging following encouraging signs out of Europe and a jump in apartment building in the U.S. The Dow Jones industrial average jumped more than 300 points.

German business and consumer confidence rose unexpectedly in December, and the Spanish government pulled off a successful debt auction. Both helped to ease worries about Europe's debt crisis.

Borrowing costs for the Spanish government plunged at an auction of short-term debt, a sign that investors are becoming more confident in the country's ability to pay it back.

"Spain has plenty of problems, large debts and budget deficits," said Sam Stovall, chief equity strategist at S&P Capital IQ. "So when we see debt auctions go much better than expected it's very encouraging."

Spain raised €5.6 billion ($7.3 billion), much more than its goal of €4.5 billion. Investors demanded an interest rate of only 1.74 percent to lend to the government for three months, a steep fall from the 5.1 percent at an auction in November.

The Dow Jones industrial average jumped 319 points, or 2.7 percent, to 12,085 as of 1:15 p.m. Eastern time. It fell 100 points the day before. Cisco Systems Inc. rose 4.4 percent, the largest gain of the 30 Dow stocks.

Analysts cautioned that other big rallies in the stock market have been quick to fade as traders move quickly to get out of stocks and keep more money in cash. "If you're selling into rallies, it means people want out. They don't believe it's sustainable," said Quincy Krosby, Prudential Financial's market strategist.

Take the Dow's 490-point jump Nov. 30 after major central banks made a coordinate move to prop up European lenders with access to massive amounts of cash. The one-day rally brought the Dow to 12,045, but that gain had evaporated by last week.

The Standard & Poor's 500 index gained 33 points, or 2.8 percent, to 1,239. Energy and materials stocks made the largest gains. The Nasdaq composite index rose 77, or 3 percent, to 2,600.

Europe's major stock markets also climbed. Germany's DAX soared 3.1 percent. France's CAC-40 jumped 2.7 percent.

The Commerce Department said builders broke ground on 685,000 new homes last month, a 9.3 percent jump from October. That's the highest level since April 2010. Building permits, a gauge of future construction, increased 5.7 percent, spurred by a jump in apartment permits.

The report sent housing stocks sharply higher. PulteGroup Inc. jumped 8 percent. D.R. Horton Inc. Lennar Corp. each rose 5 percent.

Stovall said the surge in housing construction was another piece of evidence that the U.S. will avoid slipping into another recession soon. "It's great news," he said.