Wall Street edges higher in volatile session

NEW YORK (Reuters) - U.S. stocks rose in a volatile session on Wednesday, with the S&P 500 index on course to snap a three-day losing streak despite concerns about Europe that have investors on edge.

German Chancellor Angela Merkel helped to allay some fears by saying the euro zone was committed to keeping Greece in the currency union, but the market pared gains after euro zone central bank sources told Reuters the European Central Bank had stopped providing liquidity to some Greek banks as recapitalization wasn't in place.

"People are waiting to see what will happen with Europe. The line in the sand for taking some kind of action is getting closer," said Reed Choate, portfolio manager at Neville, Rodie & Shaw in New York.

"It's a positive that there seems to be support for keeping Greece in the euro zone, but at the same time you can't fight central bank policy."

Worries about Greece's political and financial future have driven equity losses in recent weeks, sending the S&P 500 more than 4 percent lower in May. Merkel's comments at a news conference with new French President Francois Hollande were seen as partly alleviating those fears.

Opinion polls in Greece show leftists opposed to the terms of the international bailout for the country would likely win the new election, set for June 17. Greeks, afraid of the devaluation that would follow an exit from the euro, withdrew at least 700 million euros from their banks on Monday.

The Dow Jones industrial average was up 35.84 points, or 0.28 percent, at 12,667.84. The Standard & Poor's 500 Index was up 2.99 points, or 0.22 percent, at 1,333.65. The Nasdaq Composite Index was up 3.05 points, or 0.11 percent, at 2,896.81.

Positive U.S. housing and industrial production data bolstered sentiment. Industrial shares rose 0.6 percent, the top gaining S&P sector. U.S. output rose in April at its fastest pace in over a year. A separate report showed a rebound in groundbreaking for U.S. homes in April, suggesting the housing market recovery was gaining.

General Electric Co fell 1.1 percent to $18.40, reversing earlier gains on news its finance arms won regulatory approval to resume returning some of its profit to the parent company. Such a move that could clear the way for GE to accelerate stock buybacks and raise its shareholder dividend.

GE Capital plans to pay a special $4.5 billion dividend to GE, the biggest U.S. conglomerate, later this year.

The minutes from the Federal Reserve's April meeting, due at 2 p.m. (1800 GMT), will be scrutinized for any discussion on the health of the labor market as investors debate the likelihood of more stimulus measures.

The Fed meeting took place before the first Greek election, so the minutes may not provide clues on how the Fed would respond if the European crisis deepens.

J.C. Penney shares fell 0.7 percent to $33.32 a day after the department store owner scrapped its dividend and showed its effort to remake itself as an affordable fashion-oriented retail chain took a much bigger-than-expected toll on sales in the first quarter. However, the stock sharply cut its earlier losses of more than 10 percent.

Target Corp rose 0.7 percent to $55.46 after the discount retailer raised its full-year profit view.

Facebook Inc increased the size of its initial public offering by 25 percent and could raise as much as $16 billion as strong investor demand for the No. 1 social network trumps debate about the company's long-term potential to make money.

(Editing by Kenneth Barry)