Stocks lost steam in the final hour of trading Wednesday after a report that European banks may shrink to meet higher reserve targets and news that real Chinese copper demand may be lower than initially thought, but still finished higher amid optimism that Slovakian politicians reached an agreement to approve the EFSF expansion.
The Dow Jones Industrial Average jumped 102.55 points, or 0.90 percent, to close at 11,518.85. Despite the rally, the blue-chip index failed to close in positive territory for 2011.
Disney and BofA led the Dow gainers, while Alcoa slumped.
The S&P 500 rose 11.71 points, or 0.98 percent, to end at 1,207.25. The Nasdaq gained 21.70 points, or 0.84 percent, to finish at 2,604.73.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, briefly broke below 30 for the first time since Aug. 5.
Most key S&P sectors closed higher, led by financials and industrials, while utilities slumped.
Materials erased most of their gains following news that real Chinese copper demand may have been lower than previously thought, according to the FT.
Shares of Freeport McMoran and Newmont Mining pared most of their gains following the report.
Meanwhile, financials also came off their highs after top European banks said they would rather sell assets than recapitalize to meet the higher reserve requirements from the EU for higher capital ratios, according to the FT.
Still, Citigroup and JPMorgan finished higher.
Investors were encouraged after Slovak opposition leader and parties in the outgoing Slovak government coalition reached an agreement to ratify a planto strengthen the euro zone's EFSF rescue fund by Friday.
European shares ended higher, helped by expectations of a plan from European Commission President Jose Barrosso to recapitalize the euro zone banks. “There’s still a lot of money on the sidelines," Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. "If there’s more good news going forward, a lot of that money can come into the market and push things higher.”
Meanwhile, policymakers considered a fresh round of bond purchases, with at least two members supporting the plan, according to the minutes from the latest Fed meeting. In addition, policymakers saw 'significant' risks to economic growth, but said they expect the economy to pick up in the coming quarters.
This is a great time for long-term, patient investors to buy companies with strong balance sheets, said Matt Kaufler, portfolio manager at Federated Clover Investment Advisors.
“You want to be building up [on equities]—the time you shy away is when things are exuberant,” said Kaufler.
Moreover, Kaufler said the country needs to see more coherence on fiscal policy.
“Monetary policy is not the cure-all…America’s clamoring for leadership and what you’re currently seeing is a dance among children in Washington and it’s undermining public confidence,” he explained, warning investors may need to wait until next year’s election to get a clearer political picture.
Until then, Kaufler said the market will likely continue its “sawtooth-type of price movement.”
On the earnings front, Alcoa fell after the aluminum producer posted earnings that fell short of analyst expectations, even as revenue topped forecasts. Meanwhile, at least three brokerages cut their price target on the firm.
“Alcoa hasn’t been the same market leader that they’ve once been before so [their report] is not an overwhelming concern for other earnings going forward,” said Detrick.
Meanwhile, PepsiCoposted higher earnings, thanks to robust international growth and the acquisition of a Russian beverage company.
Infosys jumped after India's second-largest software services exporter posted a robust quarterly profit and cut its full-year revenue outlook by less-than-expected.
Chevron is slated to report their interim results after-the-bell. The oil giant expects third-quarter earnings to be similar to the previous quarter. And JPMorgan and Google are among major companies scheduled to report Thursday.
Wal-Mart Stores gained after the big-box retailer said it is poised to end its nine consecutive quarters of declining sales at its same-store sales during its annual analysts meeting.
Disney rallied to lead the blue-chip gainers after Caris upgraded the stock to "buy" from "neutral."
On the tech front, Akamai soared more than 10 percent amid market rumor that Google may be interested in buying the Internet content delivery network.
Research In Motion declined after millions of Blackberry users in Europe, Africa, the Middle East and parts of South and North America are still experiencing problemsreceiving e-mail and using messaging and browsing services.
The setback adds to problems for the company, which is already struggling to compete with Apple .
Liz Claiborne skyrocketed more than 30 percent after the apparel maker said it plans to sell several brandsto JCPenney and change the company's name.
Treasury prices extended their losses after the government sold $21 billion in 10-year notes at a high yield of 2.271 percent and a bid-to-cover of 2.86.
On the economic front, weekly mortgage applications climbed last week as demand grew for both purchases and refinancing even as interest rates rose, according to the Mortgage Bankers Association.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
On Tap This Week:
THURSDAY: International trade, jobless claims, oil inventories, 30-yr bond auction, Fed's Kocherlakota speaks; Earnings from JPMorgan, Google
FRIDAY: Retail sales, import/export sales, consumer sentiment, business inventories, new iPhones available; Earnings from Mattel
More From CNBC.com: