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NEW YORK (CNNMoney) -- U.S. stocks were sharply higher Wednesday, as investors welcomed the latest plan to recapitalize European banks and continued to sort through Slovakian politics.
The Dow Jones industrial average (INDU) rose 126 points, or 1.1%, the S&P 500 (SPX) added 17 points, or 1.5%, and the Nasdaq composite (COMP) gained 40 points, or 1.5%.
Financial stocks were among the leading gainers, with JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) up between 1% and 3%.
"Market sentiment is improving. Expectations are that we will get some resolution in Europe," said Peter Cardillo, chief market economist at Rockwell Global Capital.
European Commission President Jose Barroso announced a five-point plan Wednesday to address the sovereign debt and banking problems in Europe, saying policy makers need to act immediately to resolve the long-running crisis.
Echoing other European Union officials, Barroso said banks should look to the private sector for additional capital, then to governments and then to the European Financial Stability Fund (EFSF), which is a bailout fund for the region's most troubled nations.
Barroso also said that banks that do not satisfy capital requirements should be barred from paying out dividends and bonuses. His full plan will be submitted to the European Council in two weeks.
Every development overseas is getting investors' front-and-center attention. More than 80% of the experts surveyed by CNNMoney agree that debt problems overseas are the most challenging hurdle for stocks, which have been struggling to claw back from lowest levels of the year hit earlier this month.
U.S. stocks ended mixed Tuesday, with the technology sector rally bucking a broader decline, as investors watched the unfolding drama in Europe.
Investors had been awaiting the outcome of Slovakian parliament's vote to overhaul the EFSF, but shortly after U.S. markets closed Tuesday, Slovakia voted the measure down.
The proposed bailout needs to be ratified by all 17 eurozone nations, and Slovakia was the last country to vote. The development is a bit of a setback for European leaders that are struggling to deal with the continent's growing debt crisis. However, Tuesday's "no" vote does not necessarily mean that the plan to expand the EFSF is dead.
Investors expect that in its second round of voting with a new government in place later this week, Slovakia will manage to pass the bailout.
"In a second round of voting, they will probably pass the EFSF here," said Cardillo.
Companies: In addition to watching the debt drama unfold across the Atlantic, investors will be tuning in for the latest round of company earnings, Cardillo said.
Shares of Alcoa (AA, Fortune 500) slid after the aluminum producer reported quarterly income that fell short of analysts' expectations, but the company brought in more revenue than anticipated.
PepsiCo (PEP, Fortune 500)'s stock rose after the company reported stronger revenue Wednesday on global snack and beverage volume. PepsiCo also saw gains from its the acquisition of Wimm-Bill-Dann, a Russian dairy and juice company.
Overall, S&P 500 company earnings are expected to have climbed almost 13% in the third quarter of 2011, according to earnings tracker Thomson Reuters. Revenue of the companies in the benchmark index are expected to have risen 10%.
Meanwhile, shares of Liz Claiborne (LIZ) surged after the apparel and accessories maker announced it is selling several of its brands for $328 million. J.C. Penney (JCP, Fortune 500) is buying the company's namesake Liz Claiborne brand as well as the Monet brand. Liz Claiborne also sold its Dana Buchman brand to Kohl's (KSS, Fortune 500).
Shares of Wal-Mart (WMT, Fortune 500) moved higher after company executives said same-store sales have been positive for the past three months during an annual meeting for analysts. Sales at the world's largest retailer have been declining for nine straight quarters. Wal-Mart is scheduled to report official third-quarter results next month.
Economy: The latest minutes from the Federal Open Market Committee's meeting will be released at 2 p.m. ET.
The U.S. Senate failed to approve President Obama's jobs bill. The 50-49 vote in favor of the measure fell short of the 60 senators needed to advance the $447 billion dollar plan.
The city council of Harrisburg, Pennsylvania, voted to file for bankruptcy protection Tuesday night. The state capital of Pennsylvania, with just under 50,000 residents, was facing a possible takeover of its operations by the state government under a receivership.
World markets: European stocks rose in afternoon trading. Britain's FTSE 100 (UKX) ticked up 1%, the DAX (DAX) in Germany gained 2.3% and France's CAC 40 (CAC40) added 2.6%.
Asian markets ended mixed. The Shanghai Composite (SHCOMP) jumped 3% and the Hang Seng (HSI) in Hong Kong added 1%, while Japan's Nikkei (N225) slipped 0.4%.
Currencies and commodities: The dollar lost ground against the euro and the British pound, but rose versus the Japanese yen.
Oil for November delivery gained 3 cents to $85.84 a barrel.
Gold futures for December delivery rose $22.90 to $1,683.90 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.20% from 2.16% late Tuesday. 
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