) -- Stocks finished at multi-year highs Wednesday lifted by a bullish outlook for financials and reduced concerns about European debt.


Dow Jones Industrial Average

rose 84 points, or 0.7%, to close at 11,755, a two-year high and the blue-chip index's second consecutive gain. The

S&P 500

advanced 11 points, or 0.9%, to settle at 1286, and the

Nasdaq Composite

gained ground for the third straight day, rising 20 points, or 0.7%, to close at 2737.

Shares of

JPMorgan Chase

(JPM) - Get Report


Bank of America

(BAC) - Get Report

topped the Dow, and the

Financial Select Sector SPDR ETF

(XLF) - Get Report

rose 1.6% to $16.50. The enthusiasm was fueled by a bullish outlook for the sector from Wells Fargo, which said it expects banks to raise their dividend payouts in 2011.


(AA) - Get Report



(CAT) - Get Report



(MCD) - Get Report

were among the handful of components that lost value within the Dow, which saw 24 of its 30 components post gains.

Overall market breadth was largely positive as well with 70% of stocks finishing higher while 28% gave up ground. About 960 million shares traded on the

New York Stock Exchange

and 1.8 billion shares changed hands on the Nasdaq.


Federal Reserve's

beige book report showed that the economy was growing at a moderate pace, with some areas such as consumer spending and manufacturing showing signs of strength. Loan demand conditions came in mixed, while real estate was still weak.

The beige book is a summary of economic activity across the Fed's 12 reporting districts, that is used at the monthly policy-setting meeting.

Notably, the report highlighted some signs of inflationary pressures in the economy, citing rising costs for manufacturers and retailers. But they maintained that the upward pressure on wages was still very limited.

Still, the comments on inflation were a departure from the central bank's earlier stance that inflation was subdued. Phil Flynn, analyst at PFGBEST, says the Fed is right to be concerned about inflation. According to him, the Fed has been reluctant to acknowledge the rise in commodity prices as job growth was lacking and it regarded some inflation as a better outcome than deflation.

But now, with the labor market showing some signs of strength, Flynn says, officials might be a little more concerned. "It is both good news and bad news," said Flynn. "On the one hand, the economy is improving. But when the economy gets better, here comes inflation."

Stocks got off to a strong start Wednesday after Portugal sold €1.25 billion ($1.62 billion) of

debt securities in an auction that saw a strong demand, helping to alleviate persistent concerns about the European Union's ability to contain its debt crisis.

Marc Pado, Cantor Fitzgerald U.S. market strategist, said the real impact of the Portuguese auction was playing out across the banking sector.

"For the past couple of days, the European banks have been down because a lot of them hold sovereign debt as collateral and if Portugal had needed a bailout, that would have been drawn out," he said, adding, "Our markets jumped back in December when our banks came out in terms of their holdings of foreign debt and it wasn't as much as people had thought. So today banks are higher because it looks like Portugal doesn't need a bailout and will continue not to need a bailout."

In economic news, the U.S. Treasury Department said the federal budget deficit narrowed to $80 billion, in line with expectations.

Earlier, the Department of Labor said export prices rose by 0.7% in December and import prices jumped 1.1%. Excluding agriculture, export prices grew 0.6%, compared with growth of 0.8% in November, and import prices, excluding oil, rose 0.4% after rising previous growth of 0.8%.

In a speech on the economic relationship between the U.S. and China,

U.S. Treasury Secretary Timothy Geithner said China's currency is considerably undervalued and expressed frustration at how slowly Beijing is acting on its promise to strengthen it.

Shares of

AK Steel

(AKS) - Get Report

were shed 2.4% to $15.23 on a

downgrade to sell from neutral at UBS. The firm cited the company's lower leverage to higher steel prices because of its fixed-price contracts.


stocks trading higher on upgrades included


(SYMC) - Get Report

, which was up 3.2% to $17.63 on an upgrade to buy from hold at Citigroup. Business process services company


(SNX) - Get Report

was up 1.6% to $34.28 on an upgrade to strong buy from buy at Needham & Co, according to a


report. The company also said its first-quarter profit will be as much as 80 cents a share, topping expectations.

Cliffs Natural Resources

(CLF) - Get Report

agreed to acquire Canada's

Consolidated Thompson Iron Mines

for $4.95 billion. Cliffs shares spiked 4.1% to $88.423.

Shares of


(ITT) - Get Report

were up 16.5% to $61.50 as the company said it

plans to separate into three publicly traded companies, spinning off its water-related businesses and its defense and information solutions unit. The remaining part of ITT, an industrial company, will continue to trade on the NYSE.

Shares of

Arch Coal

(ACI) - Get Report

were down 3.9% to $34.13 after the company

lowered its full-year outlook late Tuesday to $1.11 a share to $1.15 a share, from a previous range of $1.25 to $1.40.

Shares of


(NVDA) - Get Report

jumped another 15% to $23.35 amid a wave of positive analyst views in recent days following its patent-related settlement win with


(INTC) - Get Report

. The stock has doubled over the past three months.

Micron Technology

(MU) - Get Report

jumped 7.1% to $9.34, as the semiconductor company rolled out several new flash memory chips for laptops at the Consumer Electronics Show.

The Energy Information Administration said crude oil inventories fell by 2.2 million barrels in the week ended Jan. 7, exceeding the decline of 300,000 barrels that analysts had been expecting, according to a Platts survey.

The February crude oil contract rose 75 cents to settle at $91.86 a barrel.

Elsewhere in commodity markets, the February gold contract closed higher by $1.7, bouncing back from earlier lows to settle at $1,385.80 an ounce.

The dollar weakened against a basket of currencies with the dollar index down by 0.9%. The benchmark 10-year Treasury note fell 9/32, lifting the yield to 3.373%.


Hong Kong's Hang Seng rose 1.5% and Japan's Nikkei added 0.02%. London's FTSE gained 0.6% and the DAX in Frankfurt jumped 1.8%.

-- Written by Melinda Peer and Shanthi Bharatwaj in New York


Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.