By Herbert Lash

NEW YORK (Reuters) - U.S. stocks jumped more than 2 percent on Wednesday after strong results at Wells Fargo fuelled a powerful rally in the battered banking sector and an unexpected leap in U.S. crude supplies led oil prices to fall sharply.

Equity markets in Europe also ended higher as a weaker euro underpinned automotive stocks and Wells Fargo (WFC.N: Quote, Profile, Research) lifted banks that also have been slammed by the global credit crunch.

Spot gold prices tumbled about 2 percent as crude oil slid for a second day, and the dollar extended gains after Federal Reserve Chairman Ben Bernanke said that under certain conditions currency intervention may be warranted. Minutes from the Fed's June meeting showed policy-makers believed the next interest rate move could be an increase, which also lifted the dollar.

Driving the stock market rally was a surge in banks, which have suffered a terrible year, as Wells Fargo's results eased investor fears about mortgage losses. The sector has absorbed more than $400 billion (200 billion pounds) of write-downs and credit losses since the global credit crisis began last summer.

Wall Street's three major indexes posted their biggest one-day percentage gains since April 1.

The KBW banking index jumped more than 17 percent in the biggest single-day gain since at least 1993. The largest previous spike was 9.2 percent on March 16, 2000, -- the height, and turning point, of the 1990s boom in technology shares.

"What's taking place today is a market recovery driven by financials and a continued drop in oil prices," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Not all the news was positive. Data showed U.S. consumer price inflation accelerated to an annual rate of 5 percent in June -- well above economists' forecasts -- and U.S. government debt prices fell sharply.