Stocks shoot higher as worries about Europe ease

Hopes that banks would start raising their dividends sent financial stocks sharply higher Wednesday. Indexes closed at their highest levels in more than two years after a successful bond auction in Portugal eased worries about Europe's debt crisis.

Portugal borrowed $1.6 billion at a lower long-term interest rate than many expected. Investors have been concerned that Portugal will struggle with its debts and become the third European country to require a bailout after Greece and Ireland.

Analysts cautioned that it's still possible Portugal could need a financial lifeline if its economy slips back into recession this year.

"Things are not resolved completely here," said Rob Lutts, president and chief investment officer of Cabot Money Management.

Banks led the market higher after an analyst at Wells Fargo Securities issued a report saying their earnings should grow much faster than other companies this year. He also said banks were likely to distribute more of their earnings to shareholders as dividends.

JPMorgan Chase & Co. rose 2.5 percent to $44.71 after the company's CEO, Jamie Dimon, told CNBC late Tuesday that the bank hopes to raise its dividend in the second quarter. JPMorgan's stock led the 30 large companies that make up the Dow Jones industrial average, followed closely by Bank of America. Bank of America gained 2 percent to $14.99.

The Dow rose 83.56 points, or 0.7 percent, to close at 11,755.44. That's the Dow's highest close since Aug. 11, 2008.

The Standard & Poor's 500 index also reached its highest level since Aug. 28, 2008. The index gained 11.48, or 0.9 percent, to 1,285.96.

The Nasdaq composite rose 20.50, or 0.8 percent, to 2,737.33.

ITT Corp. jumped 16 percent to $61.50 after the defense contractor said it would split itself into three publicly traded companies. ITT plans to separate its defense and information, water technology and industrial products divisions. That should make it easier for investors to understand the company's various businesses, said Robert Pavlik, chief market strategist with Banyan Partners.

American International Group Inc. slipped 1 percent to $58.40 after the company agreed to sell its stake in Taiwan's third-largest insurer for $2.2 billion. The deal is part of AIG's plan to raise money to repay the $182 billion it received in government bailout funds.

More than two stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume was 4.3 billion shares.