Friday’s big equity rally erased the losses of the previous four sessions on reports European leaders are preparing steps to combat the debt crisis. Of course, we’ve heard this talk before.

Still, the Dow vaulted over 200 points Friday after Bloomberg News reported members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds.

Separately, Reuters reported Spanish Prime Minister Mariano Rajoy is close to asking for a European Union bailout for the country.

A falling VIX and volatility-linked ETFs this week suggest investors are less fearful of another August sell-off.

The S&P 500 rose to its highest level in three months on Friday after the Labor Department said the U.S. economy added 163,000 jobs in July, more than economists had expected, although the unemployment rate ticked higher to 8.3%.

“A lot of market participants began to rethink yesterday’s ECB statement and look at it from a more positive perspective. Overall, a lot of investors thought maybe it’s not as bad as it originally sounded,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services, in a Reuters report.

Stock ETFs pulled back earlier in the week on disappointment the European Central Bank and Federal Reserve didn’t suggest further quantitative easing was imminent. However, equities stormed back on Friday.

For the week, the S&P 500 was on track for a gain of 0.5% in afternoon trading Friday. The Dow was set to rise 0.3% and the Nasdaq Composite climbed 0.5%.

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