U.S. stocks closed at their  highest level since last summer, with positive economic and financial news temporarily tempering worries over the festering European debt crisis.

The Dow Jones industrial average closed at 12,579, up 0.78 percent, its highest rise since July 25, the Wall Street Journal reported. The S&P 500 closed up 1.11 percent to 1,308.04, the first time  the index closed above 1,300 since July 28.

Stephen Wood, chief market strategist at Russell Investments, said Wednesday's close may have been in response to improving economic conditions and corporate profitability in the U.S.

Wood called it the "battle of the Atlantic."

"On our side of the Atlantic, you have robust improvement in the economy and stabilization in unemployment and housing," he said. "On other side, we have the euro mess, which will take time to clear politically."

Earlier on Wednesday, the National Association of Home Builders released a positive report  that found home builder confidence had improved to 25, with 50 siginfying a level of positive sentiment.

On Wednesday morning, U.S. banks reported growth in such  sectors as consumer and business lending. Goldman Sachs reported lower fourth-quarter earnings than in 2010  but still beat estimates, though  revenue was lower than expected.   U.S. Bancorp reported revenue growth.  PNC Financial Services Group reported a "disppointing quarter out of PNC due to elevated expenses," David Konrad, an analyst with Keefe, Bruyette & Woods, wrote in a note to clients.

News from the International Monetary Fund   may have also boosted the markets when it  proposed increasing its lending capacity by $500 billion to calm instability arising from the two-year-old European debt crisis.