Easing worries about Goldman and strong profit numbers from Citigroup helped lift financial shares and the broader market even as speculation about possible changes to financial-industry regulations hovered over Wall Street.

Stocks seesawed through afternoon as traders came to terms with the government’s charges against the Wall Street giant.  A late-session rally, however, put the beaten-down financial shares in the driver’s seat.  Shares in Citigroup (NYSE:C) surged after its quarterly profit report surprised investors.  Goldman (NYSE:GS) advanced 1.6% even as the Securities and Exchange Commission voted 3-2 on party lines to press the civil fraud charges against the firm.  Goldman said it will fight the charges.

Shares of airlines companies also felt the heat of a volcanic eruption in Iceland that has resulted in cancellations of hundreds of flights and stranded passengers across airports.  American Airlines parent AMR Corp. (NYSE:AMR) retreated 4.3%, while shares in UAL Corp. (NASDAQ:UAUA), the parent of United Airlines, dropped 5.1%.  The spread of ash resulting from the eruption has enveloped European airspace, and analysts estimate the losses resulting from the ash cloud at more than $1 billion. 

A Financial Times report this morning says AIG (NYSE:AIG) is contemplating charges against Goldman over losses incurred on similar insurance deals of mortgage-backed securities; shares in both the companies are up in premarket trading.    

After being in the negative territory for much of the session yesterday, the Dow average climbed 73 points to end the day at 11092.05.  The broader S&P 500 index gained 5 points, or 0.5%, and the tech-heavy Nasdaq, down more than 1% at midday, managed to cut losses and closed off 0.1% at 2,480.  On the New York Stock Exchange, declining shares beat those that advanced in price by an 8-to-7 margin on volume of about 1.27 billion shares.

The Vix volatility measure plunged 5.6% to 17.34, and demand for safe-haven US securities also waned.  The 10-year shed 9/32 as its yield rose to 3.803%.  Even as risk appetite increased, the US dollar rose 0.1% against a basket of currencies, sending commodities priced in US dollars lower.  A higher dollar sent gold prices off $1.10 to $1198.  Expectations of declining inventories sent crude prices off for a third straight session, down $1.79 to $81.45.

After Bank of America (NYSE:BAC) and JP Morgan’s (NYSE:JPM) strong profit numbers, Citigroup’s (NYSE:C) quarterly numbers surprised analysts as the firm reported its best quarter in more than two years, riding high on cost saving initiatives and a decline in loan losses. Nevertheless, CEO Vikram Pandit sounded cautious in the face of an economy suffering from troubling unemployment rates, and uncertainty over the bank’s ability to trim its portfolio of $500 billion in troubled assets and volatile investment banking returns.

Among S&P 500 industry sectors, financials (+0.9%) led the gainers.  Gains in financial sector shares were accompanied by advances in health care shares (+0.7%), consumer goods (+0.4%), along with 0.1% increases in oil and gas, consumer services, telecommunications, utilities and technology firms.  Declines occurred in basic material (-0.3%) and industrial (-0.1%) shares.

Today’s packed earnings table sees numbers from Apple (NASDAQ:AAPL), Bank of New York (NYSE:BK), Coca-Cola (NYSE:KO), Goldman (NYSE:GS), Johnson & Johnson (NYSE:JNJ), United Healthcare (NYSE:UNH), and Yahoo (NASDAQ:YHOO) reporting.

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