U.S. stock ETFs reversed a two-week slide in the holiday-shortened week with a relief rally in European markets and hopes a fiscal-cliff deal will be reached helping to buoy equities.

The S&P 500 jumped 3.6% during Thanksgiving week, while the Dow added 3.4% and the Nasdaq Composite surged 4%.

As expected, volume was thin with many traders taking the week off. Volume in SPDR S&P 500 (NYSEArca: SPY) was under 50 million shares during Friday’s shortened session, less than half the daily average of 130 million shares the past three months.

The S&P 500 ETF posted its best weekly rally since June as U.S. consumers flooded malls and retailers on Black Friday to kick off the holiday shopping season.

“People are trying to get a sense of what the holiday shopping season will be in the U.S.,” said James Dunigan at PNC Wealth Management in a Bloomberg report. “Other than that, there’s not much driving the market today in this shortened session. Obviously, we’ll all be waiting for the fiscal cliff negotiations when Congress comes back next week.”

European ETFs enjoyed a monster rally this week on hopes leaders are close to an agreement to provide more bailout aid for Greece. Global X FTSE Greece 20 ETF (NYSEArca: GREK) vaulted 10% this week.

In currency ETFs, the euro climbed to a three-week high against the dollar on Friday, Reuters reported. An unexpected rise in German business confidence helped stoke the euro.

“The market is getting a bit confident that a Greek deal will be struck. This will remove one of the near-term uncertainties in the euro zone and some of the short euro bets will be squeezed as a result,” said RBS currency strategist Paul Robson in the Reuters story.

Meanwhile, the equity rally crushed VIX-futures products designed to track market volatility. The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) fell to an all-time low of $30 a share on Friday and was down 12% on the week.

The top five unleveraged ETFs the past five sessions were Global X FTSE Greece 20, iShares DJ US Home Construction (NYSEArca: ITB) and First Trust Amex Biotech (NYSEArca: FBT) with gains of at least 8%.

The bottom five unleveraged ETFs were Active Bear ETF (NYSEArca: HDGE), ProShares Short Russell 2000 (NYSEArca: RWM) and ProShares Short QQQ (NYSEArca: PSQ) with losses of 4% or more.

Next week’s economic data features reports on durable goods orders, home prices, consumer confidence, new home sales, the Fed’s beige book, pending home sales, and personal income and spending.

Full disclosure: Tom Lydon’s clients own SPY and VXX.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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