BANK RALLY IGNITES REST OF MARKET

Wall Street and its battered banks finally enjoyed a hopeful day to break its slump.

Stocks rallied on three events of good news – banks are purging healthy amounts of their toxic paper, oil keeps sliding lower and the greenback gets stronger by the day.

The Dow Jones industrial average recovered all of its losses from the prior day, surging 266.48, or 2.39 percent to 11,397.56, technically breaking free by a hair’s breadth of bear territory.

The Standard & Poor’s 500 index jumped 28.83, or 2.34 percent, to 1,263.20, and the Nasdaq gained 55.40, or 2.45 percent, to 2,319.62.

Crude oil tumbled $2.54 a barrel to $122.19, a welcome relief from the pounding this summer of oil costing more than $147-a-barrel.

“We’re living from one piece of news to the next,” said Alan Gayle, investment strategist at RidgeWorth Capital Management.

The stock rally gained stream after Merrill Lynch wrote off another $5.7 billion of its troubled assets, leading to widespread predictions that Citigroup and other banks would follow suit in coming days.

Bank shares posted double-digit gains, with Bank of America up 14.8 percent to $32.22, Wachovia up 15 percent to $15.70, Washington Mutual up 12.4 percent to $4.43 and Lehman up 10.5 percent to $16.88. Merrill jumped 8 percent to $26.25 and Citigroup rose 5.9 percent to $18.45.