U.S. Stocks Rally, Extend S&P 500's Best Monthly Gain Since '87

March 25 (Bloomberg) -- U.S. stocks rose, extending the best monthly rally since 1987 for the Standard & Poor's 500 Index, as unexpected growth in durable-goods orders and new-home sales spurred speculation the economy is stabilizing.

General Electric Co., Bank of America Corp. and Alcoa Inc. led the Dow Jones Industrial Average to a five-week high as the government reported a 3.4 percent increase in demand for longer lasting products such as refrigerators, airplanes and computer chips and a 4.7 percent gain in new-home purchases. CB Richard Ellis Group Inc., the largest property broker, surged 58 percent as lenders relaxed debt requirements.

The S&P 500 added 2 percent to 822.37 at 12:02 p.m. in New York and has jumped almost 12 percent in March. The Dow gained 158.66 points, or 2.1 percent, to 7,818.63. The Nasdaq Composite Index increased 1.8 percent to 1,543.13. Seven stocks rose for each that fell on the New York Stock Exchange.

"This could be the beginning of an improvement," said Charles Smith, the Pittsburgh-based manager of $700 million including the Fort Pitt Capital Total Return Fund, which beat 78 percent of its peers last year. "The market is essentially saying, 'Now we have an idea that we've already seen the worst rate of change in GDP.'"

The S&P 500 erased yesterday's decline, which was spurred when Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner proposed tighter regulations on the financial industry. The benchmark U.S. stock index is up 21 percent since March 9 amid speculation the government's plan to help investors buy toxic assets will revive credit markets.

Bonds Slump

Treasury notes declined for a fifth day as a U.K. government debt auction failed and the U.S. prepared to sell $34 billion in five-year notes, raising concern record amounts of government bonds will overwhelm demand. The last time the U.K. was unable to attract enough investors was in 2002 when it tried to sell 30-year inflation-protected bonds. The U.K.'s FTSE 100 Index rose less than 0.1 percent, trailing a 0.7 percent advance in the Dow Jones Stoxx 600, Europe's regional benchmark index.

GE, the biggest maker of power-plant turbines, jet engines, locomotives and medical-imagining equipment, climbed 4.8 percent to $10.91. The increase in durable goods orders was the biggest gain in more than a year and the first in seven months, the Commerce Department said. The increase followed a 7.3 percent decrease in January that was larger than previously estimated.

Bank of America, the largest U.S. bank by assets, rallied 8.9 percent to $7.86. Alcoa, the nation's biggest aluminum producer, jumped 7.9 percent to $7.89.

A gauge of homebuilders in S&P indexes added 9.3 percent as all 13 companies advanced, led by rallies of more than 16 percent in M/I Homes Inc. and Standard Pacific Corp. Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased to an annual pace of 337,000 after a 322,000 rate in January, the Commerce Department said.

Economy Watch

Combined with reports showing improvements in retail sales, residential construction and home resales, the figures indicate the economy is improving after shrinking 6.2 percent last quarter, the fastest pace in a quarter century.

A measure of S&P 500 financial stocks climbed 4.6 percent, the most among 10 industries. Wells Fargo & Co., the biggest West Coast bank, increased 9.2 percent to $16.93. President Barack Obama scaled back criticism of Wall Street in a speech last night by saying lawmakers and the public shouldn't vilify those who try to reap rewards in the free-market system.

The president plans to introduce new rules this week to protect consumers and investors against financial fraud, aiming to stamp out practices that helped cause the mortgage-market crisis. The administration will also release proposed legislation that gives the Treasury and Federal Deposit Insurance Corp. power to take over failing financial institutions and wind them down, Geithner said in prepared remarks to a conference in New York.

CB Richard Ellis Rallies

CB Richard Ellis posted the S&P 500's steepest gain, jumping 58 percent to $4.73. The shares were raised to "overweight" at JPMorgan Chase following the approval by lenders to amend its credit facility, easing covenants in exchange for higher financing costs.

PepsiCo Inc. rose 1.9 percent to $52.49. The world's biggest snack-food maker was raised to "buy" from "neutral" at UBS AG, which cited "earnings and investment flexibility."

Hewlett-Packard Co. added 2.6 percent to $31.40. The world's largest personal-computer maker was rated "outperform" in new coverage at RBC Capital Markets.

"Investors will benefit from HP's diverse revenue portfolio, recurring book of business, stronger margin profile and solid management team," the brokerage wrote in a report.

The gain in stocks came even as JPMorgan cut its earnings estimates for S&P 500 companies as the recession worsened in recent weeks. Average earnings per share will be $57 this year compared with a previous forecast of $65, strategist Thomas Lee wrote in a report today. The firm's prediction is more optimistic than the average forecast of $47.45 a share compiled from a Bloomberg survey of Wall Street strategists.

Earnings Watch

"Achieving our 2009 EPS estimate is almost entirely dependent on financials," New York-based Lee wrote in a report released today.

He joins Barclays Capital's Barry Knapp, who reduced his earnings projection to $41 a share, down from a November forecast for $46, earlier this week.

The S&P 500 jumped 7.1 percent on March 23, its steepest gain since October, on speculation the U.S. plan to finance purchases of toxic assets will spur growth.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .