Stocks rallied to finish higher in another volatile session Tuesday, led by industrials and materials, but investors continued to remain cautious over the euro zone debt crisis and the economy.
The Dow Jones Industrial Average rose 44.73 points, or 0.40 percent, to finish at 11,105.85, after toggling between positive and negative territory throughout the session. The Dow still remains on pace for its biggest quarterly point loss since the fourth quarter of 2008.
Intel and GE gained on the blue-chip index, while BofA slipped.
The S&P 500 gained 10.60 points, or 0.91 percent, to end at 1,172.87. The Nasdaq jumped 37.06 points, or 1.49 percent, to close at 2,532.15.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded below 38.
All 10 S&P sectors finished higher, led by industrials and materials.
The BRICS major emerging markets are in "preliminary stage" talks about increasing their holdings of euro-denominated bondsin an effort to help ease the euro zone debt crisis, according to a Reuters report, citing Brazilian government officials.
European shares finished higher, led by banks, following news that Greek Prime Minister George Papandreou is scheduled to hold a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy on Wednesday to focus on developments on Greece's economy.
On Monday, investors were encouraged after an FT report that said Italy’s government is looking to China to see if they will make "significant" purchases of the debt-ridden nation's bonds and investments in strategic companies.
However, an Italian government source said the recent meetings with China discussed possible Chinese investments in Italian industrial assets, not bonds as previously expected, according to a report from Reuters.
Meanwhile, an auction of Italian 5-year debt saw yields rise, demonstrating there is still concern about Italian sovereign debt. The Italian government meets later this week to finalize new budget measures to bring the deficit down, but debt at 120 percent to GDP remains a major concern for the country.
European banks trading in the U.S. were sharply higher including Barclays and Deutsche Bank .
U.S. financials were also trading to the upside including Morgan Stanley and Citigroup .
JPMorgan also gained after Stifel Nicolaus upgraded the bank to "buy" from "hold." However, the bank scaled down their banking outlook, saying market revenue will be down from the second qurater and investment banking fees will be about $1 billion for the current quarter. The updated projection is well below some analyst estimates.
Apple edged higher after RBC said they see an unprecedented demand for the tech giant's new iPhone 5. RBC has an "outperform" rating on the stock and a $500 price target.
Best Buy slumped to hit a fresh 52-week low after the electronics retailer reported a lower-than-expected profit on weak demand for televisions and video game products.
Cisco CEO John Chambers will be discussing his plans on how to boost salesduring the company's analyst day. The tech bellwether's stock is down more than 20 percent year-to-date.
And has extended its offer for takeover offerfor British software company Autonomy to Oct. 3 after gaining acceptances from only 41.6 percent of shareholders at the first closing date.
Meanwhile, Intel and Google said they have developed a partnership to help accelerate the chipmaker's foray into smartphones.
Nintendo's attempt to rescue its failed 3DS handheld games gadget with a raft of new games content fell short of expectations and left investors pessimistic about the outlook for the company.
Toyota will invest $337 million in Indonesia to expand in the fast-growing car market there.
Aetna surged to hit a new 52-week high after the health insurer said it expects to exceed its full-year profit forecast.
Cummins jumped after the power generation equipment maker's President and COO said 2011 will be another record year for the company in terms of profitability.
Trading volume was on the lighter side with the consolidated tape of the NYSE at 4.03 billion shares, while 1.07 billion shares changed hands on the floor.
Treasurys prices slippedafter the government auctioned $21 billion in 10-year notes at at high yield of 2.00 percent and a bid-to-cover or 3.03. The government is scheduled to auction $13 of 30-year bonds on Wednesday.
On the economic front, import prices fell 0.4 percent in August due to lower fuel, food and industrial material costs, according to the Labor Department. Economists had expected import prices to fall 0.8 percent, according to a Reuters survey.
In addition, the small businesses optimism index fell 1.8 points to 88.1 in August, according to the National Federation of Independent Business (NFIB), due to weaker expectations for retail sales gains and dismal business outlook in the next six months.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, PPI, retail sales, business inventories, oil inventories, 30-yr bond auction, Microsoft analyst meeting
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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