US STOCKS-Wall St rallies on bailout revival hopes

* Bush says legislative process on bailout not over

* Possible new accounting guidelines add to confidence

* Financial shares lead rebound

* Stronger-than-expected economic reports lend support

* Dow up 4.7 pct, S&P 500 up 5.3 pct, Nasdaq up 5 pct

(Updates close with more on indexes' historic performance, details on Google, retail, tech stocks and Campbell Soup)

By Steven C. Johnson

NEW YORK, Sept 30 (Reuters) - Wall Street had its best day in six years on Tuesday, a day after its worst sell-off since just after the October 1987 stock market crash, as investors bet Washington would revive a plan to stabilize the U.S. financial sector after its surprising defeat on Monday on Capitol Hill.

Adding to the positive tone was a Reuters report that U.S. regulators intend to provide new accounting guidelines that could slow the heavy flow of mortgage-related losses on banks' balance sheets. The Dow jumped 485 points, wiping out more than half of its record 778-point drop on Monday.

Strains persisted in credit markets, though, suggesting banks remain reluctant to lend to each other, and September marked the benchmark S&P 500's worst month in six years.

But investors were feeling more optimistic after President George W. Bush and congressional leaders pledged to continue talks on a $700 billion financial-sector rescue plan.

The S&P 500 rose more than 5 percent, recovering more than half of the losses booked on Monday when the House of Representatives rejected the plan, which would have let the U.S. Treasury buy bad mortgage debt from banks so they can resume lending. Tuesday's climb marked the S&P 500's best one-day percentage gain since July 2002.

"The president's saying that they'll get something passed this week has definitely calmed nerves," said Marc Pado, market strategist at Cantor Fitzgerald & Co in San Francisco.

"And if a bill doesn't pass, a change in accounting rules might be enough to break the lock in credit markets," he added. "It won't support us forever, but it will buy time and break the stranglehold on the banks."

Under current rules, banks must value assets based on what they would fetch in a current market transaction. Since prices for mortgage-related assets have long been at distressed levels, banks have been forced to scurry for more capital.

The Dow Jones industrial average .DJI rallied 485.21 points, or 4.68 percent, to end at 10,850.66. The Standard & Poor's 500 Index .SPX jumped 58.35 points, or 5.27 percent, to 1,164.74. The Nasdaq Composite Index .IXIC climbed 98.60 points, or 4.97 percent, to 2,082.33.