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High hopes for the U.S. Christmas retail season and another round of optimism that the euro zone is inching closer to a resolution of its worsening debt crisis sent stock markets surging.

The S&P/TSX composite index surged, with gains led by resource stocks as improved demand prospects pushed oil and copper prices sharply higher.

An increased appetite for risk and higher commodity prices helped push up the Canadian dollar

New York markets also registered big gains as the Dow Jones industrial index the S&P 500 index and the Nasdaq composite index made headway.

Markets also got a big boost from signs of a strong start to the U.S. holiday retail season, otherwise known as Black Friday. Americans' willingness to open their wallets has eased concerns that the world's largest economy will slide back into recession.

Investors are clearly hoping that the recent signs of deterioration in the debt crisis will finally get Europe's leaders to agree on a package of measures that can ease market concerns over whether the euro currency itself can survive.

Worries about the debt crisis hit stock markets hard last week with the TSX dropping 3.6 per cent and the Dow industrials tumbled 4.78 per cent.

Markets were particularly disappointed during the week at the technical failure of a German bond auction.

And borrowing rates for Italy hit the seven per cent level for the country's 10-year bonds last week, a level which is considered to be unsustainable.

On Monday, hopes for the euro zone seemed largely based on reports and rumours.

Analysts pointed to a weekend report from Reuters that France and Germany are working on a much faster way towards euro zone fiscal integration.

Such a plan would start off with a core zone of eight to 10 countries instead of involving all 27 EU countries.

"It's rumours, it's talk about action but it's better than what we saw in the last three weeks," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"You're seeing how desperate investors are for reassurance, that someone is paying attention and that they will do something, even if it's not enough and all it does is temporarily reassure everyone that they will take steps in the right direction."

At the same time, the International Monetary Fund denied it was readying a €600-billion ($798-billion U.S.) rescue package for Italy.

And Germany insisted that it has no plans to float bonds together with the euro zone's five other triple-A rated nations.

The proceeds from such a measure would be used to provide assistance to some of the single currency bloc's indebted members, such as Italy and Spain.

Meanwhile, Italy paid sharply higher borrowing rates in an auction Monday. The interest rate Italy had to pay to get investors to part with their cash for 12 years skyrocketed to 7.20 per cent, a full 2.7 percentage points higher than the last similar auction.

And credit rating agency Moody's warned that the "rapid escalation" of Europe's financial crisis is threatening the creditworthiness of all euro zone governments, even the most highly rated. Only six of the euro zone's 17 countries have the top rating — Germany, France, Austria, the Netherlands, Luxembourg and Finland.

There was also a stern warning from the Organization for Economic Co-operation and Development, which said policy makers around the world must "be prepared to face the worst," as the economic impact of Europe's debt crisis threatens to spread around the developed world.

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