Jan 21 (Reuters) - U.S. stocks staged a sharp recovery on Wednesday after the steepest selloff in three months, as investors took relief from President Donald Trump signaling he would not use force in his push to acquire Greenland.

Addressing world leaders in Davos, Switzerland, Trump said he was ruling out military action, but argued no country other than the United States can guarantee security for the Danish territory - which he repeatedly referred to as a "big piece of ice".

"One of the reasons why the market is bouncing back is Trump stressed that he does not intend to use force to take Greenland, and that he intends to make it diplomatic," said Damian McIntyre, head of multi-asset solutions team at Federated Hermes.

"Overall, we anticipate this to continue, but it to ultimately lead to a more diplomatic resolution."

The bounce follows Tuesday's rout, when all three major U.S. indexes sank nearly 2% after Trump warned new tariffs could hit European allies unless the U.S. is allowed to buy Greenland.

The CBOE Volatility index dropped from its mid-November highs touched in the previous session, down 2.43 points at 17.59.

U.S. megacaps, which were at the forefront of the sell-off, steadily gained. Nvidia and Alphabet rose 2.6% and 3%, respectively.

Meanwhile, Netflix dropped 4.5% after the streaming giant paused share buybacks to help fund the purchase of Warner Bros Discovery's studio and streaming businesses.

Barring defensive sectors consumer staples and utilities, all other S&P 500 sub-sectors were in the green.

At 11:25 a.m. the Dow Jones Industrial Average rose 440.45 points, or 0.91%, to 48,929.04, the S&P 500 gained 67.95 points, or 1.00%, to 6,864.81 and the Nasdaq Composite gained 266.11 points, or 1.16%, to 23,220.43.

REGIONAL BANKS RISE; DATA IN FOCUS

Investors will also monitor remarks from other business and global leaders in Davos. Back in Washington, markets kept an eye on the U.S. Supreme Court as it hears arguments over Trump's push to remove Federal Reserve Governor Lisa Cook.

A burst of strong results from small and mid-sized lenders sent the regional banking index up 3.5%, hitting its highest since December 2024.

Charles Schwab rose 1.3% after reporting higher fourth-quarter profit, while Citizens Financial Group surged 6% on the back of a 31.7% jump in quarterly profit.

Among other earnings-driven moves, United Airlines rose 1.7% after the carrier issued an upbeat outlook for the current quarter and the full year.

Johnson & Johnson dipped 1.7% despite forecasting 2026 sales and profit ahead of Wall Street estimates.

Of the 33 companies in the S&P 500 that reported quarterly earnings through last Friday, 84.8% beat analysts' estimates for profit, according to LSEG I/B/E/S data, compared to the long-term average of 67.3%.

Among other stocks, U.S. nuclear sector companies rose after Trump supported nuclear energy procurement.

NuScale Power was up 4.4%, Nano Nuclear Energy gained 3.7% and Sam Altman-backed Oklo rose 3.3%.

Kraft Heinz fell 5.5% after a regulatory filing showed Berkshire Hathaway may shed its 27.5% stake in the consumer company.

(Reporting by Sruthi Shankar and Pranav Kashyap in Bengaluru; Additional reporting by Johann M Cherian; Editing by Krishna Chandra Eluri and Shilpi Majumdar)

By Sruthi Shankar and Pranav Kashyap