* Deutsche Bank nears $5.4 bln settlement with DOJ - AFP
* U.S-listed Deutsche Bank stock set for best day since 2011
* Banks bolster S&P, Goldman drives Dow
* Indexes up: Dow 1.02 pct, S&P 0.91 pct, Nasdaq 0.94 pct (Updates to early afternoon)
By Yashaswini Swamynathan
Sept 30 (Reuters) - Wall Street rallied on Friday as a bounce in Deutsche Bank shares powered financial stocks.
Deutsche Bank's U.S.-listed shares surged as much as 15.2 percent after French news agency AFP reported that the bank was nearing an agreement with U.S. officials to pay $5.4 billion to settle charges related to selling toxic mortgage bonds before the financial crisis.
The stock had lost more than 22 percent in the past two weeks after the U.S. Department of Justice demanded $14 billion from the German lender to settle the charges.
Deutsche Bank's German-listed stock recovered smartly from record lows to close up 6.4 percent.
The S&P 500 financial index was on track for its best day in eight weeks, rising 1.48 percent and outpacing gains in other major sectors.
The index had lost nearly 1.5 percent on Thursday, sparked by declines in Deutsche Bank and Wells Fargo.
For the moment, the Deutsche Bank news is providing a bid to financials and the broader market, said Ryan Larson, head of equity trading at RBC Global Asset Management.
Shares of JPMorgan, Bank of America Citigroup and Morgan Stanley rose between 1.6 percent and 2.8 percent and were among the top influences on the S&P 500 index.
Goldman Sachs' 1.4 percent rise gave the Dow its biggest boost.
At 12:32 p.m. ET (1632 GMT), the Dow Jones Industrial Average was up 185.15 points, or 1.02 percent, at 18,328.6.
The S&P 500 was up 19.5 points, or 0.91 percent, at 2,170.63 and the Nasdaq Composite was up 49.44 points, or 0.94 percent, at 5,318.60.
The three indexes are set to clock gains for the quarter, while only the Nasdaq is set to close higher for the month.
Ten of the 11 major S&P 500 sectors were higher, while utilities was the only sector in the red.
Qualcomm shares rose 3.5 percent after sources said the company was in talks to buy NXP Semiconductors in a deal valued at more than $30 billion. NXP was up 6 percent.
Cognizant shares plunged 14.6 percent, making it the biggest loser among S&P companies, after the IT services provider said it was conducting an internal investigation into possible violations of U.S. anti-corrupt practices laws related to payments in India.
Advancing issues outnumbered decliners on the New York Stock Exchange by 2,228 to 665. On the Nasdaq, 2,046 issues rose and 678 fell.
The S&P 500 index showed 19 new 52-week highs and three new lows, while the Nasdaq recorded 54 new highs and 26 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D'Silva)