CORRECTED - US STOCKS-Wall St higher, S&P hits key low before bounce

Fri May 21, 2010 11:16am EDT

(Corrects lead to say "flash crash" was May 6, not last month)

* Germany's parliament approves bailout contribution

* Bank shares gain

* Indexes up: Dow 0.2 pct, S&P 0.5, pct, Nasdaq 0.4 pct

* For up-to-the-minute market news see [STXNEWS/US]

By Chuck Mikolajczak

NEW YORK, May 21 (Reuters) - Wall Street was slightly higher in volatile trade on Friday as the S&P 500 fell below the level reached during the market "flash crash" earlier this month before muscling into positive territory.

The S&P rebounded from several days of declines that had driven the index down 12 percent from an April high.

Stocks fell at the open as concerns over the euro-zone debt crisis and uncertainty over the effects of U.S. financial reform fractured investor confidence in risky assets.

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. For details, see [ID:nN20244272]

JP Morgan Chase & Co (JPM.N) advanced 3.3 percent to $39.08, and Bank of America Corp (BAC.N) rose 1.4 percent to $15.50. The KBW Bank index .BKX gained 1 percent.

"We were way oversold coming into today," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore. "What we are seeing is a bounce after having some tremendous selling pressure in the market."

The Dow Jones industrial average .DJI gained 19.80 points, or 0.20 percent, to 10,087.81. The Standard & Poor's 500 Index .SPX rose 5.36 points, or 0.50 percent, to 1,076.95. The Nasdaq Composite Index .IXIC climbed 7.83 points, or 0.36 percent, to 2,211.84.

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 on the benchmark index 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.

Germany's parliament approved a plan to allow its government to contribute to a 750 billion euro ($940 billion) emergency debt package despite wide public opposition to the move. [ID:nLDE64K0S1]

The Chicago Board Options Exchange Volatility index .VIX, Wall Street's so-called fear gauge, fell 6.2 percent to 42.97 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. (Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)