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Stocks Close Near Highs, Led by Materials

Stocks rallied sharply in the final minutes of trading to finish near their highs in another volatile session Wednesday, buoyed by a handful of better-than-expected economic news and amid optimism over the euro zone.

The Dow Jones Industrial Average rallied 131.24 points, or 1.21 percent, to finish at 10,939.95, led by Cisco and Disney .

The S&P 500 climbed 20.09 points, or 1.79 percent, to end at 1,144.04. The Nasdaq jumped 55.69 points, or 2.32 percent, to close at 2,460.51.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished below 38.

Among the key S&P sectors, materials and industrials gained, while consumer staples slipped.

“Volatility is here to stay at least for some period of time in the foreseeable future,” Rob Morgan, chief investment strategist at Fulcrum Securities told CNBC. “I cut back my weighting on stocks two months ago and I’m still not ready to jump in yet. Until we start to see some higher lows, I’m not so positive on stocks.”

On the economic front, private sector employment gained more than expected, rising 91,000 in September, according to Automatic Data Processing. Economists had expected a gain of 75,000, according to Reuters.

Meanwhile, the number of planned layoffs at U.S. firms in September jumped to 115,730 last month, the highest in more than two years, according to Challenger, Gray & Christmas. The figure was more than double August's total of 51,114.

The reports come ahead of Friday's monthly widely-followed non-farm payrolls number.

European shares snapped a three-day losing streak, led by financials, after the region's finance ministers agreed to safeguard the region's lenders. The gains come even after Moody’s downgraded Italy’s credit rating by three notches and maintained its negative outlook for the economy.

Adding to woes, Spain’s employment minister Valeriano Gomez admitted to CNBC the country would most likely miss its economic growth targetfor the year.

Meanwhile, Belgium and France are expected to finalize a rescue plan for Dexiaby Thursday that would sever the bank's French lending business and may nationalize its Belgian arm.

U.S. bank stocks were under pressure for most of the session, but reversed their losses in the final hour of trading along with the broader market.

Bank of New York Mellon was sued by New York federal and state prosecutors who accused the bank of cheating clients in foreign exchange transactions.

Apple unveiled its new iPhone 4S with upgraded features, but was welcomed with little excitement as fans had hoped for more than an updated version of last year's model. The letdown left Android rivals better placed to grab market share.

Meanwhile, Research In Motion jumped to lead the S&P 500 gainers amid market rumors that Vodafone may be looking to acquire the BlackBerry maker.

Yahoo surged following news that Microsoft may be considering a bidfor the troubled Internet company, according to Reuters.

Earlier, Microsoft said it's partnering with CNBC's parent company Comcast , HBO, Verizon's FiOS service and others to bring on-demand and live TV content to the Xbox.

Also on the tech front, Google slumped after Stifel cut its rating on the search-engine giant to "hold" from "buy." And Hewlett-Packard rose even after JPMorgan resumed coverage on the IT company with an "underweight" rating and at a price target of $20. And Citigroup cuts price target on HP to $28 from $45.

Coal companies rallied, reversing recent declines, with shares of Alpha Natural Resources soaring to lead the S&P 500 gainers. Arch Coal was also trading higher.

EU regulators will formally object this week to the planned merger of Deutsche Boerse and NYSE Euronext, according to Reuters.

On the earnings front, Costco slipped after the wholesale retailer missed its quarterly profit and sales target, adding it will increase its membership fee for a little more than 22 million members.

Yum Brands declined after the parent company of KFC posted a profit that matched estimates, but failed to assuage investor concernsabout slowing growth in China, its biggest market.

Also on the economic front, ISM non-manufacturing index came in at 53.0 in September, slipping from 53.3 in August. Economists polled by Reuters expected a reading of 52.9.

Weekly mortgage applications slipped last week, according to the Mortgage Bankers Association, reflecting a demand decline for refinancing loans even as interest rates fell.

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

Coming Up This Week:

THURSDAY: BoE announcement, ECB announcement, jobless claims, chain-store sales; Earnings from Constellation Brands
FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint's 4G plans unveiled

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