* Banks up after Europe news, Goldman Sachs upgrade
* Home builders gain after October pending home sales rise
* Dow up 0.9 pct, S&P up 1.1 pct, Nasdaq up 1 pct (Updates to afternoon)
By Angela Moon
NEW YORK, Dec 2 (Reuters) - Financial stocks led Wall Street higher on Thursday after the European Central Bank left in place a liquidity safety net for vulnerable banks.
The KBW bank index shot up 3.2 percent. The S&P 500 financial index rose 2.3 percent, making it the largest gainer among S&P sectors.
Stock investors were reassured by the ECB's commitment that its liquidity backstop for weakened euro-zone banks will continue.
"The fears had been centered on Europe. That seems to have stabilized, and now the focus is on what will domestic and international growth look like. People are betting that growth will be better than people had feared," said Mark Bronzo, portfolio manager at Rydex-SGI in Irvington, New York.
Further supporting financial shares, Goldman Sachs Group Inc said U.S. banks are on stronger footing because of an improving economy, higher equity prices and a favorable interest-rate environment.
Shares of regional lender Marshall & Ilsley Corp jumped 8.8 percent to $5.31 and Bank of America Corp gained 2.8 percent to $11.62.
Home builders' stocks rose as an index of pending home sales unexpectedly climbed in October, hinting the economic recovery had started to stabilize. The Dow Jones U.S. Home Construction index advanced 4 percent.
The Dow Jones industrial average was up 98.38 points, or 0.87 percent, at 11,354.16. The Standard & Poor's 500 Index was up 13.09 points, or 1.09 percent, at 1,219.16. The Nasdaq Composite Index was up 23.63 points, or 0.93 percent, at 2,573.06.
Other data showed U.S. retailers reported higher-than-forecast sales for November, while the four-week moving average for initial weekly claims for jobless benefits fell to a fresh two-year low, though new requests rose for the week.
PepsiCo Inc agreed to buy Russian juice and dairy producer Wimm-Bill-Dann. U.S.-traded shares of Wimm-Bill-Dann surged 27.3 percent to $31.15. Pepsico's stock lost 0.9 percent to $65.03.
The Dow and the S&P 500 scored their biggest one-day percentage gains in three months on Wednesday as optimism about efforts to resolve the European Union's debt crisis helped push the S&P above 1,200.
If the S&P 500 continues to hold above 1,200, the market will see strong resistance at 1,225-1,230, which coincides with a recent two-year high and the 61.8 percent Fibonacci retracement of the benchmark's slide from October 2007 to March 2009, a key technical indicator.