Stocks rose on Wednesday, the start of the third quarter, as reassuring manufacturing data from China, Europe and the United States reinforced hopes that the world's economy is on the road to recovery.

A day after the benchmark S&P 500 wrapped up its best quarter in a decade, investors plowed new money into stocks, boosting growth-sensitive sectors like energy, industrials, technology, materials and consumer discretionaries.

But with the release of the all-important June non-farm payrolls data just a day away, some caution prevailed, causing indexes to finish sharply off their highs.

A weaker U.S. dollar underpinned stocks of multinational companies such as Coca-Cola , up 2.5 percent at $49.18, as investors bet the U.S. currency's decline might boost overseas earnings. Coca-Cola is one of the best-known defensive stocks, which are shares of companies deemed better able to withstand an uncertain economy.

General Mills Inc , the maker of Cheerios cereal, also gave investors more reason to be optimistic about the economy after the food company forecast a stronger-than-expected annual profit, sending its stock up 3.9 percent to $58.18.

There are clearly signs that we are emerging from the recession, said Maury Fertig, chief investment officer of Relative Value Partners in Northbrook, Illinois. We think the economy has bottomed out and we'll see some positive GDP this quarter.

Even so, volume was light because of the absence of most market players in a holiday-shortened week. U.S. financial markets will be closed on Friday for the U.S. Independence Day holiday.

The Dow Jones industrial average <.DJI> rose 57.06 points, or 0.68 percent, to 8,504.06. The Standard & Poor's 500 Index <.SPX> gained 4.01 points, or 0.44 percent, to 923.33. The Nasdaq Composite Index <.IXIC> shot up 10.68 points, or 0.58 percent, to 1,845.72.

Earlier in the session, indexes had risen more than 1 percent, but pared gains heading toward the close as apprehension about Thursday's non-farm payrolls data crept into the market.

COUNTDOWN TO PAYROLLS

The initial estimate, according to a Reuters poll of economists, called for payroll losses of 355,000 non-farm jobs last month. But an updated poll this week of 76 economists raised the figure to 363,000 jobs. The department said in May that 345,000 positions were eliminated by employers.

The unemployment rate is expected to have crept up to 9.6 percent -- its highest since June 1983 -- from 9.4 percent in May.

The job data is due at 8:30 a.m. on Thursday.

Kraft Foods Inc , another major U.S. food company, jumped 5 percent to $26.61, following the outlook of General Mills. Kraft topped the Dow's list of major advancers.

Chip makers ranked among the Nasdaq's biggest boosters, with Intel Corp up 3 percent at $17.04.

In the latest readings on the global economy, surveys from Europe showed manufacturing was shrinking less than initially thought and in China's case, growing modestly.

Other data on Wednesday showed the U.S. manufacturing sector contracted in June but at a slower pace than in May. The Institute for Supply Management said its index of national factory activity edged up to 44.8 to in June from 42.8 in May.

Additionally, global outplacement consultancy Challenger, Gray & Christmas data showed planned layoffs at U.S. firms fell to a 15-month low in June. That news eclipsed the ADP Employer Services payroll survey showing that private employers cut 473,000 jobs in June.

Prospects for a better world economy lifted commodity prices, boosting stocks in natural resource companies, including miners, with Newmont Mining Corp up 3.2 percent at $42.18.

Shares of Chevron Corp rose 0.4 percent to $66.52, while Exxon Mobil added almost 1 percent to $70.56. Both stocks were off their best levels, however, after crude oil futures reversed an initial climb that sent them above $71 a barrel earlier on Wednesday.

U.S. front-month crude slipped 58 cents to settle at $69.31 a barrel, after rising as high as $71.85 earlier.

On the New York Stock Exchange, only about 950.1 million shares changed hands, way below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.11 billion shares traded, also below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones by a ratio of almost 3 to 1 on the NYSE, while on the Nasdaq, about two stocks rose for every one that fell.

(Editing by Jan Paschal)

China Energy