Stocks rose on Wednesday, reversing three days of losses on hopes the European debt crisis might ease after Germany's top court smoothed the way for Berlin's participation in bailout packages.

All three major stock indexes gained more than 1 percent in early trading, and all ten of the S&P sector indexes were higher.

European stocks bounced back from a two-year low after the court rejected lawsuits aimed at blocking the country's participation in aid to Greece and other nations.

But the court said the government must first get approval from a parliamentary committee, which could further slow a response. The FTSEurofirst 300 index of top European shares increased 2.8 percent.

The key is European banks, said Jack DeGan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. We are trading day to day on the progress of the ECB (European Central Bank) and the European officials in dealing with their credit crisis, and everyday you get a piece of news that will move our market. Today, it was good.

The Dow Jones industrial average <.DJI> jumped 143.68 points, or 1.29 percent, at 11,282.98. The Standard & Poor's 500 Index <.SPX> was up 16.66 points, or 1.43 percent, at 1,181.90. The Nasdaq Composite Index <.IXIC> put on 38.02 points, or 1.54 percent, at 2,511.85.

Yahoo Inc shares jumped 6 percent to $13.68 after its chairman, Roy Bostock, abruptly fired Chief Executive Carol Bartz on Tuesday, ending a tumultuous tenure marked by stagnation and a rift with Chinese partner Alibaba.

Bank of America Corp rose 4.4 percent to $7.31 after the heads of its consumer banking and global wealth and investment management units left in a management shake-up. The Dow component has lost almost half of its market value this year.

The CBOE Volatility index <.VIX>, Wall Street's so-called fear gauge, fell 7.5 percent to 34.24 after spiking 9 percent on Tuesday. The index usually moves inversely to the S&P 500.

(Reporting by Angela Moon; editing by Jeffrey Benkoe)