Bank stocks benefited from a broad rally Monday as the volatile market swung strongly into positive territory. The Dow Jones industrial average rose 149.85 points, to 7945.35, a 1.9% rise. The Standard & Poor's bank index rose 2.6%.

Such daily swings are a hallmark of the recent market. As hair-raising as they may be, Stephen Shobin, technical analyst at Lehman Brothers, said they suggest the market has reached its nadir, at least for the time being. "Typically at the top markets are less volatile and when they're at the bottom they move all over the place," he said.

One measure, the Chicago Board options exchange volatility index, peaked Aug. 31 at 48.3, the day the market hit its low for the year. It has since subsided to 38.4., but ample uncertainty remains, considering the index's average for the past six months is 24.6.

Sell-side analysts attributed Monday's rise to the U.S. markets joining in virtual lock-step the gains posted in equity markets across the world earlier in the day.

"The fact that news from abroad isn't bad for once is helping markets here," said Ryan, Beck & Co. analyst Nancy A. Bush.

Also helping the market, traders said, is the growing belief that the worst of President Clinton's problems are now public and that any upcoming battles with Congress likely won't damage the economy.

Though volatility may be a good sign for investors trying to determine if the market has hit bottom, it is playing havoc with the ambitions of top bankers keen to expand their businesses.

Bank consolidation has virtually stopped since the market started to crumble in mid-July and volatility soared. Investment bankers attrib-ute the fall to the rush of big deals struck earlier in the year, which have forced all bank CEOs to reconsider their expansion plans. They also say the volatile market has made it difficult to set an stock exchange ratio that both buyer and seller can live with. The question facing bank CEOs now, investment bankers say, is whether deals that have "industrial logic" will be struck once the market calms down. "Does the market turbulence eliminate deals that should be done?" said one investment banker. "It's an unanswered question."

Merger advisers say CEOs recognize that companies like SunTrust Banks Inc., Union Planters Corp., and First American Corp., all of which announced big mergers earlier this year, have all been hit especially hard in the market selloff. With the personal wealth of many CEOs tied directly to their bank's fortunes, it makes such selloffs especially painful and complicates the decision to make an expensive, potentially unpopular acquisition.

But another school of thought among dealmakers holds that, sensibly or not, July's sharp and sudden rout of bank stock prices will effectively kill off deal activity for the rest of the year.

"There is still a lot of valuation uncertainty out there," said Steven B. Wolitzer, head of M&A at Lehman Brothers. "My guess is we'll need a quarter before things get moving again."

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