Stocks on major world exchanges were headed for their largest daily gain in 16 months on Tuesday and commodities also jumped on rising hopes that European leaders will beef up the euro zone's rescue fund and tackle the region's debt crisis. The euro rose for a third straight day and oil prices gained almost 5 percent as European officials were seen considering plans to increase the size of its bailout fund and to recapitalize banks. U.S. Treasuries prices slipped, with the benchmark 10-year note's yield rising back near 2 percent as demand for safe havens ebbed. "The market is beginning to get the feeling that, finally, European lawmakers are moving out of their paralysis," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "There's hopes a global recession can be avoided." Equities also were boosted as investors rebalanced their portfolios in the last days of the quarter. The wide gap in performance between equities and bonds, favoring government debt so far this quarter, may partly reverse. U.S. stocks rose for a third straight day, with the benchmark S&P 500 index gaining more than 5 percent since Thursday, for the biggest three-day gain in six weeks. Only last week, the market fell 6.5 percent. The rebound's ferocity made at least some in the market uneasy. "I don't have a lot of faith in the moves we've been seeing," Paul Simon, chief investment officer at Tactical Allocation Group in Birmingham, Michigan, said, adding that the approaching quarter-end was "amplifying" gains in stocks. In late afternoon trading, all three major stock indexes were still up sharply, but had fallen back about 1 percent from their session highs. The Dow Jones industrial average was up 200.26 points, or 1.80 percent, at 11,244.12. The Standard & Poor's 500 Index was up 16.91 points, or 1.45 percent, at 1,179.86. The Nasdaq Composite Index was up 33.22 points, or 1.32 percent, at 2,549.91. The MSCI all-country world stock index rose 3.2 percent, on track for its largest daily gain since May 2010. European shares notched their largest percentage gain since May 2010, and were on to track for their biggest weekly gain since July 2009. The pan-European FTSEurofirst 300 index of top shares gained 4.6 percent to close at 938.38 points. Bank stocks featured among the best performers, with the STOXX Europe 600 banks index up 6.8 percent, though bank stocks are still down 30.4 percent so far this year. The rally followed expectations built over the weekend from meetings of the International Monetary Fund in Washington, D.C., which signaled European policy-makers were acting to contain Greece's debt problems and resolve a crisis threatening to engulf the world economy. BEWARE OF MORE VOLATILITY Even so, some cautioned that markets could remain volatile as traders closely watch headlines to track the level of commitment from governments and institutions as they work to prevent a Greek default. "Nothing has drastically changed. We get conversations around how we can get out of this mess -- and those are good. We need those," said Michael Sansoterra, portfolio manager of the RidgeWorth Large Cap Growth Fund in Atlanta, Georgia. "But we've yet to see any concrete action. Actions speak louder than words, so we'll flail about until we get some action." Some officials said plans were under way to boost the assets available to help cut Greece's debts and recapitalize banks. But Germany said there were no plans to increase the size of the fund for a regional bailout. Berlin faces a key vote on Thursday to increase the facility's scope. Economic data took a back seat to the events in Europe. "Once we get some resolution of the European sovereign debt issues, we will regain focus on what's going on in our economic data stream, and that hasn't been a pretty picture this past month or so," said Art Hogan, managing director at Lazard Capital Markets in New York. U.S. consumer confidence remained at depressed levels in September and a gauge of labor market conditions deteriorated to its worst since 1983, the Conference Board reported. A separate report showed U.S. single-family home prices were unchanged in July on a seasonally adjusted basis. The data suggested home prices were stabilizing, though a recovery in the housing market remains a long way off. On the commodities front, U.S. crude oil rose 5.1 percent to $84.32 a barrel. The spot price of gold, which tracks bullion, was up 1.5 percent at around $1,650 an ounce. The 19-commodity Reuters/Jefferies CRB Index climbed 2.7 percent.