By Sinead Carew
NEW YORK (Reuters) - U.S. shares rebounded sharply on Wednesday in the S&P's 500's best day in more than a month, while longer-dated U.S. Treasury yields rose to their highest in more than seven months, tracking a selloff in German Bunds.
Oil prices rallied for a second day, helping U.S. equities along with hopes for strong U.S. data and progress on Greece's debt crisis.
"It’s a back and forth tug of war between investors in this trading range," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey
"You've had a fairly decent pullback in the days up to now. You were starting to get an inflection point where investors were looking to get in."
The Dow Jones industrial average rose 236.36 points, or 1.33 percent, to 18,000.4, the S&P 500 gained 25.05 points, or 1.2 percent, to 2,105.2 and the Nasdaq Composite added 62.82 points, or 1.25 percent, to 5,076.69.
If U.S. retail and consumer data due on Thursday and Friday is impressive, it would help the case for a U.S. interest rate hike sometime this year. Expectations for strong data helped the benchmark S&P 500's financial sector, one of the S&P's best-performing sectors, said Peter Kenny, chief market strategist at Clearpool Group in New York.
Financial stocks gained 1.4 percent, while the S&P energy sector index gained 1.2 percent.
Leaders of Germany, France and the European Commission told Greece on Wednesday it must reach a deal with its creditors and stop seeking softer terms to unlock desperately needed funds.
The chairman of euro zone finance ministers said a cash-for-reform deal with Athens was still possible in time for their June 18 meeting with just a few issues remaining to be solved, but that Greek counter-proposals were not yet satisfactory.
Some investors drew optimism from the prospect of a meeting between German Chancellor Angela Merkel, French President Francois Hollande and Greek Prime Minister Alexis Tsipras slated for after dinner on Wednesday.
"The market is rebounding on a faint interpretation of things looking a little better," said Stephen Freedman, senior investment strategist at UBS Wealth Management America.
The pan-European FTSEurofirst 300 share index closed up more than 1.7 percent compared with a 1.4 percent rise for the MSCI all world stock index.
The dollar tumbled to two-week lows against the yen after Japan's chief central banker said the yen was "very weak" and unlikely to fall further. The dollar also dropped against the euro, which benefited from a rise in benchmark German 10-year bund yields to more than 1 percent for the first time since September.
The dollar was last down 0.6 percent against a basket of major currencies while the euro was up 0.3 percent against the greenback.
The selloff in German Bunds and this week's hefty corporate and government debt supply propelled longer-dated U.S. Treasuries yields to their highest in more than seven months before yields pulled back following a solid 10-year note sale.
U.S. crude neared a one-month high and gasoline futures hit their highest since November as a big U.S. stocks drawdown boosted the outlook for summer fuel demand.
U.S. crude settled up 2.2 percent at $61.43 while Brent settled up 1.3 percent at $65.70.
(Additional reporting by Richard Leong and Michael Connor in New York; Editing by Nick Zieminski and Meredith Mazzilli)