Stocks jumped to their highest since July on Wednesday as the International Monetary Fund sought to help countries hit by the European debt crisis, while forecast-beating earnings from Goldman Sachs dispelled some worries over bank profits.

The stronger-than-expected earnings from Goldman Sachs Group Inc followed disappointing results from Citigroup on Tuesday and JPMorgan Chase & Co last week.

Goldman shares shot up 6.8 percent to $104.31, while the S&P financial sector <.GSPF> rose 1.7 percent, leading the S&P 500 higher.

The banking sector has outperformed the broader market so far this year, but the financials sector was the S&P 500's weakest-performing one last year.

While the Goldman results supported financial shares, the IMF's willingness to bolster its crisis-fighting resources gave the sector a big push. Financials had suffered throughout 2011 on worries that Europe's debt crisis would hit banks globally.

Any time liquidity is added to the financial system, it gives financials a little bit of breathing room, and it will result in higher prices for the banks, said Kevin Caron, market strategist at Stifel, Nicolaus & Co, in Florham Park, New Jersey.

The IMF is seeking to boost its war chest by $600 billion to help countries reeling from the crisis, even though some nations insist Europe must first do more to support ailing members, according to sources.

Home builders' shares surged after data showed U.S. homebuilder sentiment unexpectedly jumped in January to its highest level in 4-1/2 years. The PHLX housing index <.HGX> climbed 3.1 percent, while the Dow Jones home construction index <.DJUSHB> rose 4.4 percent.

The Dow Jones industrial average <.DJI> rose 96.88 points, or 0.78 percent, to 12,578.95 at the close. The Standard & Poor's 500 Index <.SPX> was up 14.37 points, or 1.11 percent, at 1,308.04. The Nasdaq Composite Index <.IXIC> was up 41.63 points, or 1.53 percent, to close at 2,769.71.

Despite the optimism over the IMF, investors watched cautiously as Greece and its creditors resumed negotiations on terms of a planned debt swap, hoping to overcome an impasse in talks and stave off a painful default.

The benchmark S&P 500 closed above 1,300, a key resistance point that analysts said signal more room to rally if the index stays there.

Within the tech sector, Yahoo Inc jumped 3.2 percent to $15.92 a day after co-founder Jerry Yang said he was severing all formal ties with the company he started in 1995. Shareholders had blasted Yang for impeding investment deals that could have transformed the Internet media group.

In other bank results, Bank of New York Mellon Corp slid 4.6 percent to $20.30 after the world's No. 1 custody bank said fourth-quarter earnings fell.

Another big custody bank, State Street Corp slid 6.6 percent to $39.95 after saying it accelerated an expense- control program, a sign it still sees continued weakness in global capital markets.

Financial results will remain in the spotlight, with reports from Bank of America Corp and Morgan Stanley later this week. Bank of America's stock gained 4.9 percent to $6.80 and Morgan Stanley's shares were up 6.8 percent at $17.35.

As we've seen, investment banking revenues have been very weak, and we think that's going to be a trend that continues and (there's) also a lot more exposure to Europe in those banks, said Dan Neuger, portfolio manager, head of U.S. and Europe active equities for PineBridge Investments in New York, which has about $70 billion in assets.

In terms of investing, we don't like the large money-center banks. That's one area we've been away from, he said. Where we think there is more value is in the regional, more domestically focused smaller banks.

(Reporting By Caroline Valetkevitch, Additional reporting by Ryan Vlastelica; Editing by Jan Paschal)