Stocks rose 1 percent on Friday, with bank shares leading a rebound from earlier declines as worries ebbed over the sovereign debt crisis in Europe and U.S. financial reform.

Goldman Sachs Group Inc jumped 5.2 percent to $143.17 after analysts cited rumors of a possible settlement with U.S. regulators as well as sentiment bank stocks were oversold after the KBW Bank Index <.BKX> dropped 5 percent on Thursday.

Markets opened lower, with the S&P 500 briefly falling below the level reached during the market flash crash earlier this month. The S&P has suffered several days of declines that drove the index down more than 10 percent from an April high.

Germany's parliament approved a law allowing the government to contribute to a 750 billion euro ($937.8 billion) bailout package to help protect the euro.

The vote in Germany doesn't solve all the problems in the euro-zone, but it demonstrates political will and is an effective near-term Band-Aid, said Matt Kaufler, equity analyst at Clover Capital Management in Rochester, New York.

Kaufler added that investors decided the sell-off on both sides of the Atlantic was overdone.

The Dow Jones industrial average <.DJI> was up 108.07 points, or 1.07 percent, at 10,176.08. The Standard & Poor's 500 Index <.SPX> was up 16.22 points, or 1.51 percent, at 1,087.81. The Nasdaq Composite Index <.IXIC> was up 35.69 points, or 1.62 percent, at 2,239.70.

Bank shares rose a day after the U.S. Senate approved a sweeping Wall Street reform bill, capping months of wrangling over the biggest overhaul of financial regulation since the 1930s.

JP Morgan Chase & Co advanced 5.3 percent to $39.83 and was the top boost on the Dow, while Bank of America Corp rose 4 percent to $15.93. The S&P financial sector index <.GSPF> rose 3.4 percent.

The S&P hit a session low of 1055.90 before shooting as high as 1080.67 within a half-hour, led by the turnaround in financial stocks. The closing low for the year was 1056.74 in February.

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.

On the earnings front, Dell Inc fell 5 percent to $13.62, one day after posting a better-than-expected quarterly profit but weak gross margins.

AnnTaylor Stores Corp climbed 8.5 percent to $21.95 after it posted higher-than-expected quarterly earnings. Inc rose 6 percent to $83.85, a day after it forecast full-year profit at the low end of estimates as it said it plans to increase spending to fuel sales growth.

The Chicago Board Options Exchange Volatility index <.VIX>, Wall Street's so-called fear gauge, fell 14 percent to 39.32 after hitting a high of 48.20.

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

(Editing by Jeffrey Benkoe)