Nov. 5 (Bloomberg) -- U.S. stocks surged, sending the Dow Jones Industrial Average to its biggest gain since July, as jobless claims and worker productivity beat estimates and Cisco Systems Inc. said an improving economy spurred a rebound in sales. The dollar advanced, triggering declines in commodities.

Cisco, the biggest maker of networking equipment, gained 2.8 percent as earnings topped analyst estimates and the company expanded its stock buyback plan by $10 billion. IMS Health Inc. surged 23 percent after agreeing to be acquired. All 30 stocks in the Dow gained, led by American Express Co., as the Labor Department said initial unemployment claims fell to 512,000 last week and productivity surged at the fastest pace in six years.

The S&P 500 added 1.9 percent to 1,066.63 at 4:07 p.m. in New York. The Dow increased 203.82 points, or 2.1 percent, to 10,005.96 and closed above 10,000 for the first time since Oct. 22. More than nine stocks gained for each that fell on the New York Stock Exchange, the broadest advance in three months.

“We’ve actually seen more good news than bad across a broad spectrum of economic data,” said Art Hogan, the chief market analyst at New York-based Jefferies & Co. “We look at the initial jobless claims as another piece of economic data we’re pretty happy with.”

All 10 industry groups in the S&P 500 advanced at least 0.6 percent as the decrease in unemployment claims signaled that job losses are slowing as the economy begins to recover. The Labor Department’s measure of worker productivity jumped at a 9.5 percent annual rate, topping the highest estimate of economists surveyed by Bloomberg, as labor costs fell 5.2 percent to cap the biggest 12-month decrease since records began in 1948.

Tomorrow’s Jobs Report

The jobless claims data helped ease concern that rising unemployment will stifle the economy’s rebound. The government is projected to report that payrolls fell by 175,000 workers last month, according to the median of estimates in a Bloomberg News survey before tomorrow’s Labor Department report. The jobless rate probably climbed to 9.9 percent, the highest since 1983, according to the survey.

The S&P 500 has surged 58 percent from a 12-year low in March after $11.6 trillion in government spending, lending and guarantees returned the economy to growth following four straight quarters of contraction. The index is trading at almost 22 times reported operating earnings, according to data compiled by Bloomberg, near the highest level since July 2002.

Cisco added 2.8 percent to $23.93. The company’s net income fell 19 percent to $1.79 billion, or 30 cents a share, in the first quarter, which ended Oct. 24. Excluding stock compensation and some other costs, profit was 36 cents, beating the 31-cent average estimate in a survey of analysts.

‘Very Optimistic’

Cisco Chairman and Chief Executive Officer John Chambers, one of the first technology leaders to herald the recession two years ago, said he now sees a global economic recovery, fueling a rebound in his company’s sales this quarter.

“Cisco is talking about a recovery around the world, Chambers is being very optimistic and people listen to him,” said William Dwyer, chief investment officer at Baltimore- based MTB Investment Advisors, which oversees $13 billion. “People are a little cautious, they like what they’re seeing, but there’s an awful lot built into the market.”

IMS Health surged 23 percent to $20.73 for the top gain in the S&P 500. The provider of prescription data to drugmakers and analysts agreed to sell itself to investment funds managed by TPG Capital and the CPP Investment Board for $22 a share, or about $5.2 billion.

Earnings Season

CBS Corp.’s Class B shares gained 7.5 percent to $12.79, helping to propel media stocks higher. The company reported earnings after the market closed. Third-quarter profit of $207.6, or 39 cents a share excluding some items, topped analysts’ average estimate and the shares added another 0.9 percent in extended trading. Dynegy Inc. climbed 9.6 percent to $2.05. The Houston- based power producer reported third-quarter earnings of 27 cents a share excluding certain items, beating the average analyst estimate of 3 cents.

Earnings have exceeded the average analyst estimate for 81 percent of S&P 500 companies that have reported third-quarter results so far, according to data compiled by Bloomberg. That would mark the highest full-quarter proportion in data going back to 1993.

Oil and copper declined as a stronger dollar reduced the appeal of commodities as an alternative investment. The Dollar Index, a six-currency gauge of the greenback’s strength, rose 0.1 percent to 75.741, as the Reuters/Jefferies Index of 19 raw materials retreated 1 percent.

Bank Shares Rally

Bank shares advanced as Rochdale Securities LLC analyst Dick Bove said the group that led the eight-month rally in U.S. stocks will double by the end of next year as investors bet on a recovery in profits.

Banking shares in the S&P 500 added 2.6 percent as a group today and have appreciated 129 percent from the S&P 500’s 12- year low on March 9, still not enough to erase an 8.5 percent loss year-to-date.

“Getting another 100 percent out of these stocks from this level is not as big a move as one might think given where they’ve fallen from,” Bove, the analyst who recommended selling Lehman Brothers Holdings Inc. four months before it collapsed last year, said in an interview.

Consumer, Tech Stocks Gain

An index of consumer discretionary stocks advanced 2.6 percent, the most of 10 industry groups. Eastman Kodak Co. and DirecTV Group Inc. helped lead the gain, advancing 13 percent and 6.3 percent respectively. Expedia Inc. added 5.4 percent to $23.63 after the biggest Internet travel agency said it eliminated all phone-based booking fees. Ancestry.com Inc., the world’s largest online provider of family histories, jumped 5.2 percent to $14.20 in its first day of trading after raising $100 million in an initial public offering.

Technology stocks, the biggest industry in the S&P 500, rallied 2.2 percent and contributed the most to the advance. Qualcomm Inc. climbed 5.4 percent to $43.85. The world’s biggest maker of mobile-phone chips predicted a return to sales growth this quarter and said it signed Samsung Electronics Co. to a new 15-year technology license.

Microchip Technology Inc. gained 3.9 percent to $25.37 after it was raised to “buy” from “neutral” at FTN Equity Capital Markets Corp.

CVS Caremark Corp. tumbled 20 percent to $28.87 for the biggest loss in the S&P 500. The drugstore chain said its unit for managing pharmacy benefits lost $3.7 billion in contracts in the third quarter and forecast narrower margins next year. Also, it is the target of an investigation by the U.S. Federal Trade Commission, which is probing some business practices, Chief Financial Officer David Rickard said in a statement.

Retail Sales Improvement

Retailers advanced after the International Council of Shopping Centers said October same-store sales rose 2.1 percent based on results at 32 chains. That’s the best monthly result since July 2008, ICSC said.

Jo-Ann Stores Inc., which operates more than 760 fabric and craft stores in the U.S., climbed 16 percent to $31.50, the most intraday since last November. The company raised its forecast for fiscal 2010 and said same-store sales increased 4.3 percent in the third quarter.

Gap Inc., operator of the Old Navy and Banana Republic chains, gained 3.5 percent to $22.86. Polo Ralph Lauren Corp. added 3.2 percent to $77.72.

U.S. stocks yesterday erased most of a 156-point rally in the Dow average after a House bill to curb credit-card rates spurred concern about bank earnings, outweighing the Federal Reserve’s plan to keep interest rates at a record low.

‘Wall of Capital’

“The Fed is on hold, so the wall of liquidity and the wall of capital is going to look to find a home,” said John Brady, Chicago-based senior vice president with the interest rates product group at MF Global Ltd. “Risky assets should benefit, stocks should benefit.”

The difference between 2- and 10-year Treasury note yields steepened to the widest amount since September as the U.S. prepared to sell a record $81 billion of notes and bonds next week. The yield on the benchmark 10-year note rose one basis point to 3.53 percent. Yields on the two-year note, most sensitive to interest-rate changes, fell two basis points to 0.88 percent.

The VIX, a measure of stock-market volatility known as Wall Street’s fear gauge, dropped for the fourth straight day. The benchmark for U.S. stock options slid 8.3 percent to 25.43, the lowest in a week, as investors paid less for protection against declines in equities.

To contact the reporter on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.

Last Updated: November 5, 2009 16:50 EST