U.S. stocks rallied on Wednesday, with the Standard & Poor's (S&P) 500 settling above 1,300 for the first time since July 28, on better-than-expected earnings from Goldman Sachs and strong home building number.

The Dow Jones industrial average gained 96.88 points, or 0.78 percent, at 12,578.95. The S&P 500 jumped 14.37 points, or 1.11 percent, to 1,308.04. The Nasdaq Composite Index rallied 41.63 points, or 1.53 percent, to 2,769.71.

Banks got a boost after Goldman Sachs reported earnings which beat market expectations. The bank earned 978 million U.S. dollars, or 1.84 dollars per share, steeply down from 2.2 billion dollars, or 3.79 dollars per share a year earlier.

Meanwhile, stocks went higher after a report showing home- builder's confidence reached a level not seen since 2007.

According to the National Association of Home Builders, its housing market index for January came in at a stronger-than- expected reading of 25. The level, though still far short of the reading of 50 that indicates positive sentiment, was the highest since June 2007, sending shares in home builders sharply higher.

Adding to the gains, the International Monetary Fund said that it will raise its lending capacity by 500 billion dollars to insulate the global economy against any worsening of Europe's debt crisis.