Stocks rose on Friday, with bank shares leading a rebound as worries ebbed over the sovereign debt crisis in Europe and an overhaul of U.S. financial regulation.

Goldman Sachs Group Inc rose 3.8 percent to $141.24 on rumors of a possible settlement with the Securities and Exchange Commission of fraud charges, though sources familiar with the matter said no agreement had been reached.

Bank shares rose a day after the Senate approved a sweeping overhaul of regulation of Wall Street firms, capping months of wrangling over the biggest changes since the 1930s.

There were a lot of concerns about how bad will the reform be and uncertainty is worse than anything, said Phil Orlando, chief equity market strategist at Federated Investors in New York.

Now that there is a bill, investors may have gone through the details and concluded that this is not as deleterious as the worst case fears.

The Dow Jones industrial average <.DJI> rose 51.92 points, or 0.52 percent, to 10,119.93. The Standard & Poor's 500 Index <.SPX> gained 8.74 points, or 0.82 percent, to 1,080.33. The Nasdaq Composite Index <.IXIC> put on 15.69 points, or 0.71 percent, to 2,219.70.

Also easing fears over sovereign debt problems in Europe, Germany's parliament approved a bill to allow the country to contribute to rescue aid for Greece and other euro zone nations burdened with high debt loads.

Early in the session the S&P 500 briefly fell below its lowest level of the May 6 flash crash and has suffered several days of declines that drove the index down more than 10 percent from an April high.

May equity options and some options on stock indexes will stop trading at Friday's close and settle on Saturday, which may increase volatility.

JP Morgan Chase & Co advanced 5.1 percent to $39.75 and was the top boost on the Dow, while Bank of America Corp rose 3.5 percent to $15.82. The S&P financial sector index <.GSPF> rose 2.8 percent.

The Senate bill must now be merged with a measure approved in December by the U.S. House of Representatives. Top Democratic lawmakers said they aim to get a bill approved by a House-Senate conference committee to President Barack Obama to sign by July 4.

In earnings news, Dell Inc fell 6.6 percent to $13.78 a day after posting a stronger-than-expected quarterly profit but weak gross margins.

Investors were also tempted back into the market after a nearly 4 percent sell-off on Thursday left stocks at cheap valuations.

There's a complete disconnect between benign levels of both interest rates and inflation and the fact that S&P 500 multiples are so low when the economic fundamentals in the U.S. are still pretty positive, said Orlando.

At Thursday's closing level, the S&P 500's 14-day Relative Strength Index had fallen below 30 for the first time since the benchmark hit 12-year lows in March 2009, indicating the index was oversold.

(Editing by Kenneth Barry)