U.S. stocks closed higher on Wednesday despite a sharp rally in bond yields as investors found encouragement in signs of economic growth and coming resolution in the Greece debt talks. (Tweet This)
"Data's turned a good recovery," said Anthony Valeri, investment strategist at LPL Financial. "Optimism over Greece is helping equities here."
The Federal Reserve's Beige Book said economic activity expanded at a modest to moderate pace, a view affirmed by the morning's data reports on private payrolls, the service sector and trade.
The Dow Jones industrial average closed off its highs, up about 60 points. The Dow transports continued to recover, closing up 1.2 percent.
"I think the market overreacted this morning on the upside while the yield curve was going up and it took its cue from the weaker dollar and the euro stronger on hopes (of Greece), and now reality sets in," said Peter Cardillo, chief market economist at Rockwell Global Capital. "At one point or another as the yield curve continues to strengthen that is a negative effect for equities. They just don't mix."
Earlier, the blue chip index gained more than 150 points and the Nasdaq Composite briefly topped its record close of 5,106.59.
"Here we are near session highs. A lot of it has to do with improved economic conditions and (the idea that) Greece may be close," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management (U.S.).
Greek Prime Minister Alexis Tsipras agreed in a telephone conversation with German Chancellor Angela Merkel and French President Francois Hollande on the need for an immediate solution involving a lower primary budget surplus target for Greece, a Greek official said in a Reuters report.
Athens warned it could miss a 300 million euro payment due to the International Monetary Fund this Friday.
European stocks closed mostly higher as investors eyed Greece negotiations and unchanged central bank policy.
At a press conference Wednesday European Central Bank Mario Draghi reaffirmed the continuation of ECB's asset purchase program and said the central bank wants Greece to stay in the euro zone. He would not comment on the Greece debt talks. Earlier in the day, the ECB left the benchmark interest rate unchanged at 0.05 percent, as expected.
The U.S. dollar reversed early gains to fall about half a percent against major world currencies, with the euro topping $1.12.
"On balance the equity market is responding to the sense that the dollar has peaked and will move lower," said John Lonski, chief economist at Moody's. "The global investors hold just under half of Treasury debt. If investors sense dollar softening they're going to demand higher yields from Treasury bonds."
Treasury yields rose following the U.S. data reports and joined the rally in the German Bund yield. The U.S. 10-year hit 2.38, topping both its year-to-date intraday and closing high. The 10-year Bund yield jumped to trade near 0.89 percent, a high for 2015.