(Reuters) - U.S. stocks rose on Wednesday after a healthy bond sale in Portugal helped ease concern over the latest sovereign debt crisis to crop up in Europe and signs of strength in the U.S. banking sector.

European shares rallied, led by banks, on hopes euro-zone finance ministers would beef up the European Union's rescue fund and after Portugal sold 1.25 billion euros ($1.62 billion) to strong demand.

The European debt crisis and future strength in U.S. banks "are probably the two big stories" for equities markets, according to Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

The euro gained 0.7 percent against the dollar.

JPMorgan Chase & Co (JPM.N) climbed 2.2 percent to $44.54 to lead the KBW bank index .BKX, up 1.5 percent. JPMorgan Chief Executive Jamie Dimon said the bank could pay an annual dividend of 75 cents to a dollar once the Federal Reserve gives its approval, pending the completion of stress tests.

"The news from JPMorgan starts to bring some clarity into that issue and remind the market these companies are ultimately going to be good dividend payers, further restoring confidence," said Kuby.

Also fueling gains among financials were positive comments on the sector from Wells Fargo, which raised the U.S. bank sector to an "overweight" rating, citing a decline in credit costs and positive loan growth.

The Dow Jones industrial average .DJI gained 88.93 points, or 0.76 percent, to 11,760.81. The Standard & Poor's 500 Index .SPX added 10.72 points, or 0.84 percent, to 1,285.20. The Nasdaq Composite Index .IXIC rose 15.66 points, or 0.58 percent, to 2,732.49.

Shares of ITT Corp (ITT.N) surged more than 17 percent to $61.93 after the diversified manufacturer said it would separate its businesses into three different publicly traded companies, and shareholders will own shares in all the three corporations.

The stock was the top performer on the PHLX defense sector index .DFX, which rose 2 percent.

The Fed will release its Beige Book of regional economic conditions at 2 p.m..

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