An upbeat report on the housing market and Goldman Sachs earnings also lifted the market.
The Dow Jones industrial average (INDU) added 97 points, or 0.8%, the S&P 500 (SPX) rose 14 points, or 1.1%, and the Nasdaq composite (COMP) gained 42 points, or 1.5%. All three indexed closed at the highest levels since July.
The IMF said it is looking to raise up to $500 billion in additional lending resources, including a $200 billion commitment that euro area governments announced last year. The new target is based on the IMF's estimate of $1 trillion in potential global financing needs in the coming years.
The IMF said it is in preliminary stages of exploring funding options and consulting with the IMF's membership, of which the United States is the largest contributor.
While the IMF's beefed up lending capacity is good news, obstacles remain on the path toward a resolution to Europe's debt crisis.
"European policy makers struggle to stem the heightening risk for contagion," said David Song, currency analyst at DailyFX, adding that the primary concern right now is the financial fate of Greece.
"As talks surrounding Greece's second bailout package takes center stage, it seems as though the EU has little choice but to settle on a 50% haircut," said Song. "The developments may fail to prop up investor confidence should European policy makers struggle to meet on common ground."
Investors also had the latest bank earnings report to mull over, with Goldman Sachs (GS, Fortune 500) reporting fourth-quarter earnings that beat forecasts but revenue well below expectations. Goldman shares spiked almost 7% as CEO Lloyd Blankfein said in a statement that he was seeing "encouraging" signs of improvement in the markets and economy.
Investors were also encouraged by a better-than-expected report on the housing market. The National Association of Home Builders's Housing Market Index jumped to a four-year high of 25 in January, from a reading of 21 the month before. The index, which measures homebuilders' confidence, has been trending higher for the past four months.
Stocks have gotten off to a strong start in 2012, as investors focus on improvements in Europe, strong U.S. economic data and a decent batch of corporate earnings, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
The dollar fell against the British pound and also slipped versus the Japanese yen.
Oil for February delivery slipped 12 cents to settle at $100.59 a barrel.
Gold futures for February delivery rose $4.30 to $1,659.90 an ounce.
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