Stocks Rally to the Finish With Banks in the Lead

Stocks surged in the final hour, propelling the Dow to a triple-digit point gain, after a sharp drop in oil prices and an encouraging analyst note on financials.

The Dow industrials gained more than 135 points, or 1.2 percent, to close at 11602.50. The S&P 500 gained 1.4 percent.

The Nasdaq advanced 1.1 percent but investors still punished select techs, including Apple and Texas instruments after the firms dispatched disappointing results.

All three indexes finished above the bear mark, defined as 20 percent below their recent highs.

Bank of America was the biggest gainer on the Dow, jumping 13 percent, after the bank on Monday became the fourth in a string of banks to surpass earnings forecasts.

Citigroup , Wells Fargo and JPMorgan are the other three, who topped expectations when they reported last week.

That had kept the market mellow for most of the day.

"Once everyone saw the worst isn't happening this very second ... it took a lot of heat off this market," said Michael Cohn, chief investment strategist at Atlantis Asset Management.

Then, an afternoon note from Mike Mayo, an analyst at Deutsche Bank triggered a rally in the sector that sent the Dow up like a geyser -- more than 100 points -- in the final hour of trading.

"We now would reduce the degree of our 'underweighting' on the group," May wrote.

He cited three reasons: 1) There have been no new capital issuances this quarter, margins have improved more than expected and problems haven't spread as much as expected.

Wachovia had threatened to ruin the party, reporting an $8.86 billion second-quarter loss that was even worse than analyst estimates, and cutting its dividend for the second time this year. The stock initially dropped more than 10 percent but then rebounded after the bank said it doesn't plan any stock offerings to raise fresh capital. Shares finished up 27 percent. SunTrust Bank beat expectations, sending its shares up more than 16 percent.

Also giving the market a boost was oil's retreat to a six-week low.

After losing more than $16 a barrel last week -- its largest dollar-decline ever -- oil lost more than $3 a barrel Tuesday, settling at $127.95 a barrel as concerns subsided about a tropical storm heading toward the Gulf of Mexico.

Oil's slide gave airline stocks a lift. United parent UAL rocketed 69 percent, while Continental and American parent AMR jumped 43 percent, and 37 percent, respectively.

Coca-Cola and Wal-Mart were among the biggest gainers on the Dow amid hopes that oil's retreat will bring crunched consumers some relief.

Oil stocks have taken a beating through oil's retreat, prompting some strategists to say that the market's love affair with commodities is over.

But Cohn says he's actually looking for a buying opportunity to get back into oil and basic materials. "There is further to go on these stocks on the downside but they've had a good, violent correction here. They're starting to get to compelling levels again."

"These super bull-market corrections are short and violent," Cohn said, pointing out that some of the biggest gainers in last week's rally were stocks that were the most heavily shorted.

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Shares of Apple fell 2.6 percent after the computer and iPod maker exceeded the consensus earnings target but warned that current-quarter  earnings would miss analysts' expectations.

Shares of Texas Instruments