Hoping that the slowing U.S. economy will reaccelerate this fall, the U.S. stock market bounced back from its recent correction with a rousing 5.6% rally last week to register its best week in two years.

The buying spree was egged on by improving—though hardly inspiring—economic cues. Greece’s parliament approved an austerity plan and persuaded German banks to permit a rollover of its debt, which prevented Europe’s volatile mess from worsening, for now. Reality also began to outshine our shrinking expectations: An index measuring Midwest manufacturing activity rebounded to 61.1 in June from 56.6 in May, while Nike (ticker: NKE) padded its market cap by $5 billion, or 13%, last week after it surprised investors with stronger-than-expected quarterly sales and profits.

Most of all, the surge pointed to the market’s pent-up buying impulse. Before last week, stocks had absorbed seven losses in eight weeks, yet Wall Street rarely wavered from its consensus view of this economic soft patch as a passing—and ultimately buyable—phase. From their late-April peak, stocks took more than six weeks to decline 7.2%, but just a third of that time to bounce back almost 6% since mid-June.

It helps, of course, that the drag from Japan’s disaster will eventually pass, and that oil has eased 17% from its 2011 high. Corn futures corrected 10% Thursday after the Agriculture Department reported especially exuberant crop planting in June. These might help slow inflation and ease the strain on consumers, all while the U.S. central bank remains supportive and China nears the end of its credit-tightening campaign.

But after last week’s rally, the posse of stocks straining above their 50-day averages has swiftly swollen to nearly 60% from 16% just two weeks ago. Greece has momentarily reduced its interest burden, but not the heft of its outstanding loans, and worries linger about Portugal, Ireland, Italy and Spain. The European Central Bank also is expected to raise interest rates this week, which risks choking off the continent’s already frail recovery.

On Friday, stocks kicked off July with a 1.4% gain as investors cheered a rebound of the ISM manufacturing index to 55.3 in June following a sharp decline to 53.5 in May. But more than half the increase was due to rising inventories, new orders barely ticked up to 51.6 from 51, and export orders shrank enough to raise the unwelcome specter of China’s waning appetite.

The Dow Jones Industrial Average ended the week up 648 to 12,583, and the 5.4% gain was its biggest since July 2009. The Dow Jones Transportation Average climbed to an all-time high, adding 6.4% last week to stretch its three-week run to 9.6%. The Standard & Poor’s 500 rallied for five straight days to reach 1340, with last week’s 71-point gain its biggest since March 2009. The Nasdaq Composite Index jumped 163, or 6.2%, to 2816, while the Russell 2000 added 42, or 5.3%, to 840. Other risk assets also jumped, with crude oil climbing 4.2% for its first gain in five weeks, but copper fell 4.7%.

The rally helped narrow June’s losses to 1.2% for the Dow, 1.8% for the S&P 500, 2.2% for the Nasdaq and 2.5% for the Russell. The Dow finished the second quarter up 0.8%, its eighth gain in nine quarters, but the S&P ended a three-quarter run and pulled back 0.4%. The Nasdaq and the Russell also absorbed small quarterly losses of 0.3%, and 1.9%, respectively (Source: Barrons Online).