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Renewed concerns that global lenders may withhold Greece's next aid tranche, which puts the embattled country at risk for defaulting and pressuring the entire euro zone, knocked Wall Street well off the highs of the session.
As of 1:23 p.m. ET, the Dow Jones Industrial Average climbed 98.8 points, or 0.85%, to 11,757, the S&P 500 gained 9.9 points, or 0.81%, to 1,228 and the Nasdaq Composite rose 10.6 points, or 0.41%, to 2,618.
Financial shares, as well as energy and material stocks, were leading the way higher on the day. Indeed, Bank of America (BAC), aluminum giant Alcoa (AA) and Chevron (CVX) were among the best-performing blue chips. Still, lingering concerns over the European debt crisis were a strong drag on what had been a much bigger rally.
Less than a week after European leaders struck a wide-ranging agreement to tackle the crisis that analysts fear could put the region's economy in peril, a call by Greek Prime Minister George Papandreou to hold a referendum threatened to derail the entire arrangement, and potentially put the currency bloc in jeopardy. Greece needs billions of euros in rescue aid to stave off a collapse, but international lenders have pushed for highly-unpopular austerity measures, which would be voted on by the entire Greek public in the referendum.
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Indeed, the European Union and International Monetary Fund both said on Wednesday they would withhold the country's sixth aid tranche until after the referendum. Without the aid, Greece can't pay its debts and would likely default, analysts say.
It remained unclear Wednesday whether the referendum would come to fruition. The country's cabinet unanimously backed the call, but many lawmakers rejected it, and several members of Papandreou's own party threatened to defect. The fear is that if Greece defaults, the cost for other highly indebted but bigger economies, like Italy, to borrow will jump, substantially worsening the crisis.
The euro rose 0.21% against the U.S. dollar, while European blue chips ticked higher by 0.1%.
Market participants will also have a slew of economic releases to parse through on the day.
The labor market is coming into focus ahead of the highly-anticipated monthly unemployment report on Friday. The jobs market has been struggling ever since the recession, with the unemployment rate presently stuck above 9%.
Private-sector payrolls increased by 110,000 last month, zipping by economists' estimates of a gain of 101,000 jobs. As has been a trend in recent reports, small and medium-sized businesses have added jobs, while large ones shed workers.
"Job growth among private industries has recovered since August, reflecting slow but steady growth," economists at Nomura wrote in a note to clients.
Planned job cuts fell 63% last month to 42,759 -- the lowest since June -- according to outplacement firm Challenger, Gray & Christmas.
The Federal Reserve concludes its two-day meeting on Wednesday, and is expected to release its updated economic forecast. Analysts don't expect the central bank to take any additional steps to boost the stalled economy after it unveiled plans to lengthen the maturity of its balance sheet at the last meeting. Short-term interest rates also remain at historic lows between 0% and 0.25%, meaning the Fed would have to deploy more unconventional measures if it planned on easing further.
However, economists will be looking to see how the central bank will update its forecast. The last one, released in June, didn't account for the late-summer market turmoil and U.S. debt debacle.
Energy markets got a boost from a weaker U.S. dollar, and extended gains even after a fairly bearish inventory reports showing unexpectedly large increases in crude oil and gasoline stocks. The benchmark U.S. crude oil contract rose $1.01, or 1.1%, to $93.28 a barrel. Wholesale RBOB gasoline rose 6 cents, or 2.2%, from $2.68 a gallon.
Gold climbed $32.00, or 0.76%, to $1,743 a troy ounce. Yields on U.S. government debt moved higher after plunging during the selloff in the prior session. The 10-year Treasury yields 2.043% from 1.992%.
European blue rallied rose 1.4%, the English FTSE 100 jumped 1.2% to 5,484 and the German DAX soared 2.3% to 5,913.
In Asia, the Japanese Nikkei 225 tumbled 2.2% to 8,640 and the Chinese Hang Seng jumped 1.9% to 19,734.