May 2 (Bloomberg) -- U.S. stocks rose as the Dow Jones Industrial Average rebounded from its steepest monthly loss in more than two years.

American International Group Inc., the world's largest insurer, advanced after saying it will correct five years of results, giving relief to some investors that its accounting missteps are behind the company.

The Dow average added 39.17, or 0.4 percent, to 10,231.68 as of 3:26 p.m. in New York.

Oil prices erased their drop, paring gains in the Standard & Poor's 500 Index and Nasdaq Composite Index. The S&P 500 rose 2.66, or 0.2 percent, to 1159.51.

The Nasdaq was up 1.81, or 0.1 percent, at 1923.46. Google Inc., the most-used Internet search engine, climbed as Prudential Equity Group increased its share-price target.

Eight stocks were up for every five that fell on the New York Stock Exchange. Some 1.3 billion shares changed hands on the Big Board, 10 percent more than the same time a week ago.

AIG rallied $3.46, or 6.8 percent, to $54.31 for the biggest rally in the Dow average. The company said it will correct five years of results for reinsurance and other transactions that inflated net worth by $2.7 billion, or $1 billion more than an earlier estimate. The announcement assured investors that AIG made the accounting missteps to present smooth quarterly profit for Wall Street analysts rather than to mask underlying weakness in the company.

AIG has lost more than $58 billion of stock-market value since probes by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission became public in February.

Oil Rebounds

Crude oil rebounded from a two-month low on speculation that rising U.S. inventories didn't justify last month's 10 percent price decline. Crude oil for June delivery rose 2.4 percent to $50.92 a barrel in New York. Futures earlier touched $49.03, the lowest since Feb. 22.

Strategists are divided on the outlook for the U.S. market after the Dow average last week finished its worst month in more than two years, dropping 3 percent in April. The S&P 500 lost 2 percent and the Nasdaq slumped 3.9 percent in the period.

Prudential Equity Group LLC chief investment strategist Edward Keon has become more optimistic, raising his recommended stock allocation to 80 percent from 75 percent. First-quarter ``earnings have been terrific,'' Keon wrote in a note to clients. He is now the most-bullish U.S. strategist among 14 surveyed by Bloomberg.

His view contrasts with JPMorgan's Abhijit Chakrabortti, who cut his U.S. and global weighting on stocks to 55 percent from 70 percent. Earnings growth will fall ``below trend'' and there will be ``no growth'' in 2006, the strategist wrote.

Economic Reports

Economic reports today gave mixed signals on the economy. The Institute for Supply Management's factory index fell to 53.3 in April from 55.2, less than the reading of 55 expected by economists in a Bloomberg News survey. Construction spending in March rose 0.5 percent to a record $1.052 trillion, the Commerce Department said. Economists forecast a 0.3 percent gain.

Investors will get more insight into the economy from tomorrow's Federal Reserve meeting on interest rates. The central bank has lifted its overnight bank lending rate by a quarter point at each of the past seven meetings and has stuck to a plan of raising borrowing costs at a ``measured'' pace.

All 22 of Wall Street's biggest bond-trading firms surveyed by Bloomberg News expect another quarter-point increase to 3 percent.

Confidence?

``Markets don't like change,'' said Joseph Zock, who helps manage $900 million at Capital Management Associates in New York. The language ``provides investors with confidence that rates won't soar too high and the economy is moving at a measured pace as well.''

Of those 22 primary dealers, five expect the Fed to drop its use of the word ``measured'' tomorrow.

Google added $1.74 to $221.74. The company will see higher earnings due to the ``significant growth in sponsored-search advertising,'' Prudential analyst Mark J. Rowen wrote in a report. He raised his share-price target to $284 from $260.

Verizon Communications Inc. lost $1.23 to $34.57 after MCI Inc., the No. 2 U.S. long-distance phone company, accepted its takeover offer. MCI shares fell $1.01 to $25.52.

Verizon raised its bid to $26 a share, the third increase, after MCI shareholders complained previous offers were too low. Qwest Communications International Inc. said it's no longer in the interest of shareholders, customers and employees to continue pursuing its takeover bid for MCI after MCI backed the lower offer from Verizon. Qwest, the U.S.'s fourth-largest local-phone company, rose 23 cents to $3.65.

Neiman Marcus Slides

Neiman Marcus Group Inc. lost $6.07 to $92.25. The department-store chain that sells $4,800 Gucci purses agreed to be bought by Texas Pacific Group and Warburg Pincus LLC for $5.1 billion. The two buyout firms said they will pay $100 a share. The stock had surged 50 percent since its 2005 low on Jan. 28.

Brokerages slumped after UBS AG cut its rating on them, citing concern about demand for equities. UBS downgraded Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. to ``neutral'' from ``buy.''

Merrill, the world's largest securities firm, fell $1.49 to $52.44. Goldman, the third-biggest U.S. securities firm, slid $3.10 to $103.69. Lehman, the No. 5, declined $4.25 to $87.47.

Morgan Stanley, the No. 2 securities firm, dropped $3.57 to $49.05. The 6.7 percent tumble was the steepest in the S&P 500. The company said its board decided to keep Philip J. Purcell as chairman and chief executive, rejecting demands by former executives that he be ousted.

May Doldrums

The markets' slump last month was unusual because April, since 1950, has been the best month for the Dow average, according to the Stock Trader's Almanac. May is among the worst for the benchmark, with the Dow gaining an average 0.1 percent. The trend for May probably won't change, according to Jeffrey Hirsch, president of the Old Tappan, New Jersey-based Stock Trader's Almanac.

DirecTV Group Inc. increased 77 cents to $14.89. The largest U.S. satellite-television service narrowed its first-quarter loss to 3 cents a share from 46 cents a year earlier. It also added 505,000 new subscribers in the first quarter, more than the 321,000 that analysts predicted in a Bloomberg poll.

To contact the reporter on this story: Ari Levy in New York at alevy5@bloomberg.net.

Last Updated: May 2, 2005 15:27 EDT