Adam Shell

USA TODAY

U.S. stocks shot up Friday as the Dow jumped 165 points after a sell-off a day earlier on worries about the health of a major German bank, signaling that Wall Street is closely monitoring the situation at Deutsche Bank but not pricing in disaster.

Gains for the just-ended quarter:

► Nasdaq, a blistering 9.7%

► Dow, 2.1%

► S&P 500, 3.3%

Stocks' rebound Friday came after the Dow cratering nearly 200 points in Thursday's session, on a Bloomberg report that at least 10 hedge funds were reducing risk by moving some cash out of the troubled German bank.

Deutsche Bank (DB) has become the focus of the latest banking fear in Europe, some eight years after the financial crisis in the U.S. that was sparked by mortgage loans going bad.

For the day, the Dow Jones industrial average gained 0.9%, while the Nasdaq and S&P 500 ended 0.8% higher each.

The German bank has been hurt by the U.S. Justice Department, which has requested Deutsche Bank pay a $14 billion fine for its role in selling risky residential mortgage backed securities in the run-up to the financial crisis back in 2008. That huge sum, which is still being negotiated, has put additional financial stress on the German bank, which is also being weighed down by a weak eurozone economy and a low interest rate world that hurts its profitability.

But in trading on the New York Stock Exchange, Deutsche Bank shares climbed 14%. The rally was prompted by a report Friday that U.S. regulators agreed to a much lower than expected settlement. The unsourced report by Agence France-Presse said that the U.S. government had agreed to a settlement worth $5.4 billion — well below the initial $14 billion it asked for. If true, the fine would be far less onerous than originally envisioned.

The rebound was also helped by reassurances by Deutsche CEO John Cryan that the bank remains in good financial shape and a belief that its problems are not a Lehman Brothers moment, or serious enough to cause the German bank to fail and cause systemic risk to the global financial system.

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"(The stock rebound) was probably in response to a note chief executive, John Cryan, wrote to his staff, in which he insisted the bank had a strong foundation as he attempted to soothe concerns," Fawad Razaqzada, market analyst at Forex.com, noted via e-mail. "There was probably also an element of 'bargain hunting' going on as some believe the comparisons of Deutsche Bank with the fall of Lehman Brothers is clearly off the mark, as authorities are now much better prepared to deal with a banking crisis, not to mention the high levels of liquidity reserves Deutsche Bank has."

Investors fear that Deutsche Bank's financial problems could worsen, putting the bank into a position where they would need to raise fresh capital. Still, at the moment, Wall Street stresses that Deutsche Bank has ample capital and liquidity to ride out the storm.

European shares were mixed but were well off earlier lows. The broad Stoxx Europe 600 was up 0.1% and Germany's DAX index jumped 1%. Britain's FTSE 100 fell 0.3%.

Contributing: Kim Hjelmgaard