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Stocks Log 3-Day Rally Amid Greece Optimism

Stocks closed off their best levels but were still sharply higher Wednesday in another volatile session after Greek, French and German leaders renewed their pledges to aid Greece, soothing investor fears over recent rumors of a default.

The Dow Jones Industrial Average jumped 140.88 points, or 1.27 percent, to end at 11,246.73, led by HomeDepot and Walt Disney .

The S&P 500 rallied 15.81 points, or 1.35 percent, to close at 1,188.68. The S&P broke through the 1,184-1,187 level and some traders are now watching the 1,198-1,204 as the next critical area. The Nasdaq gained 40.40 points, or 1.60 percent, to finish at 2,572.55.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, tumbled below 35.

All 10 key S&P sectors gained, led by industrials and consumer discretionary.

Stocks rallied after the Greek, French and German leaders all agreed that Greece will remain part of the EU, despite recent rumors of a default. Greece's George Papandreou, France's Nicolas Sarkozy and Germany's Angela Merkel also said that additional austerity measures will ensure the debt-ridden country achieves its fiscal targets.

“All eyes are still on Europe,” said Steve Neimeth, portfolio manager at SunAmerica Value Fund. “While there could be some near-term support for equity markets after the large selloff but ultimately, it doesn’t look like the market can carry through because Europe’s just kicking the can down the road.”

Stocks flip-flopped earlier following conflicting reports involving Austria’s stance on the European bailout fund. Austria's financial minister said the parliamentary committee only rejected some procedural matter and plans to address the EFSF expansion at a later time.

Meanwhile, Italy's lower house of parliament approved the confidence vote on the 54-billion euro austerity package.

Dow component GE gained after the minority owner of CNBC said it would pay $3.3 billion to redeem the preferred shares by Berkshire Hathaway.

Dell advanced after the PC maker said it is repurchasing an additional $5 billion of its shares, a month after the firm slashed its 2012 sales forecast.

Yahoo's board is scheduled to meet later today to discuss options for the Internet firm's outlook, including the search for a new CEO according to Reuters.

PepsiCo advanced after the beverage giant announced a management shake-up.

Meanwhile, Avis Budget said it will not pursue its deal for car rental company Dollar Thrifty , clearing the way for rival Hertz Global .

Treasurys erased most of their losses after the government auctioned $13 billion of 30-year bonds at a high yield of 3.310 percent and a bid-to-cover of 2.85.

Trading volume was on the lighter side with the consolidated tape of the NYSE at 4.32 billion shares, while 1.09 billion shares changed hands on the floor.

Delivering Alpha - presented by CNBC and Institutional Investor
Delivering Alpha - presented by CNBC and Institutional Investor

On the economic front, retail sales were unchanged in August, according to the Commerce Department. And business inventories rose less than expected in July, according to the Commerce Department.

The producer price index was also unchanged in August, according to the Labor Department.

Weekly mortgage applications gained last week for the first time in a month as interest rates tumbled even further, according to the Mortgage Bankers Association.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

Coming Up This Week:

THURSDAY: CPI, Empire state mfg survey, jobless claims, current account, industrial production, Philadelphia Fed survey, credit card default rates reported; Earnings from Pier 1, Research In Motion
FRIDAY: Treasury international capital, consumer sentiment, quadruple witching

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