Nov. 4 (Bloomberg) -- U.S. stocks added to a global rally as the Federal Reserve said it still plans to keep its benchmark interest rate at a record low for an extended period and a report showed new orders rose in service industries. Treasuries extended declines as Fed policy makers said they were more optimistic about the economic outlook. Aetna Inc. and Cigna Corp. jumped at least 5 percent on speculation Republican victories in yesterday’s elections will bolster opposition to legislation overhauling health care. Freeport-McMoRan Copper & Gold Inc. and U.S. Steel Corp. climbed as a weakening dollar boosted metal prices. Merck & Co. and Microsoft Corp. rose more than 2.3 percent to lead gains in the Dow Jones Industrial Average.

The Standard & Poor’s 500 Index added 1.3 percent to 1,059.21 at 2:44 p.m. in New York. The Dow increased 137.24 points, or 1.4 percent, to 9,909.15. About five stocks advanced for every two that fell on the New York Stock Exchange.

“There was an enormous amount of uncertainty going into the statement, people were on edge, people were positioned in certain ways, and now that the statement is out of the way, there is some readjustment of those positions,” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. “The bottom line is the Fed is going to remain easy for a while. I think that’s the main thing to take out of this.”

The Fed, at the end of a two-day policy meeting, restated its intention to keep interest rates “exceptionally low” for “an extended period” and said the U.S. economy is picking up.

“Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today after meeting in Washington. “Activity in the housing sector has increased over recent months.”

ISM New Orders

The S&P 500 advanced as much as 1.5 percent in morning trading after Institute for Supply Management’s report on non- manufacturing businesses showed 1.4 percent growth in new orders and a 2 percent increase in the backlog of orders. The main index in the report fell to 50.6, below analysts’ estimates while still signaling growth. Aetna, the third-largest U.S. health insurer, jumped 6.4 percent to $28.32. Cigna climbed 5 percent to $29.72. A group of health-care equipment and service companies jumped 1.6 percent for the steepest advance among 24 industries. The group rose as much as 3 percent, its biggest intraday gain since June.

Health-Care Legislation

U.S. Senate Majority Leader Harry Reid signaled that Congress may not send health-care legislation to President Barack Obama this year, fueling concern among some Democrats that the debate will continue into the 2010 election year. Republicans won governors’ races in New Jersey and Virginia yesterday as voters concerned about rising jobless rates and record home foreclosures punished Democrats.

“Let’s call it a politically-inspired rally, given the Republicans did better in the New Jersey and Virginia elections than some had anticipated,” said Robert Schaeffer, who helps oversee $2 billion at Becker Capital Management Inc. in Portland, Oregon.

An index of raw-material producers added 0.5 percent. Freeport-McMoRan climbed 2 percent to $78.33. U.S. Steel rose 1 percent to $35.84. Gold advanced to a record of $1,096.50 an ounce, while copper led industrial metals higher.

Dollar, Commodities

The Dollar Index, a six-currency gauge of the greenback’s strength, fell 0.8 percent to 75.82, erasing yesterday’s gain. The Reuters/Jefferies CRB Index of 19 raw materials climbed for a third straight day, rising 0.2 percent.

Ambac Financial Group Inc. surged 40 percent to $1.55. The world’s second-largest bond insurer reported third-quarter net income of $2.19 billion, reversing a year-earlier loss, after unrealized mark-to-market gains in its credit derivatives portfolio. MBIA Inc., the biggest bond insurer, advanced 11 percent to $4.58 for the biggest gain in the S&P 500.

Of the 378 companies in the S&P 500 that have published quarterly earnings since Oct. 7, 84 percent exceeded estimates, according to data compiled by Bloomberg. That would mark the highest full-quarter proportion in data going back to 1993.

Walt Disney Co. rallied 2.8 percent to $28.38. The company received Chinese government approval to build a theme park in Shanghai, its first resort investment on the mainland, to tap rising incomes in the fastest-growing major economy.

Merck & Co. jumped the most in the Dow, rising 6.8 percent to $32.75. The drugmaker said that following the acquisition of Schering-Plough Corp., earnings for the combined company, excluding some costs, will increase at a “high single-digit” percentage rate each year through 2013. The company expects cost savings of at lease $3.5 billion annually after 2011 to come from all areas across the company.

Baker Hughes Slips

Baker Hughes Inc. slipped 5.8 percent to $40.92. The oilfield-services provider that agreed in August to buy BJ Services Co. said third-quarter profit plunged 87 percent after energy prices tumbled.

Hartford Financial Services Group Inc. erased earlier gains and fell 4.7 percent to $24.60. The insurer, whose new chief executive officer is conducting a review of businesses, said it will halt sales of some of its life products sold to companies.

Pulte Homes Inc. rose 5.7 percent to $9.76. The U.S. builder that bought competitor Centex Corp. in August boosted its estimated cost savings from the deal by 25 percent and said it reduced debt by $1.7 billion in the third quarter. Lennar Corp. and DR Horton Inc. gained at least 4.5 percent.

McDonald’s, American Capital

McDonald’s Corp. added 2.1 percent. The world’s largest restaurant chain was upgraded to “buy” from “hold” by EVA Dimensions.

American Capital Ltd. jumped 4.4 percent to $2.83, after earlier surging as much as 24 percent. The manager of private equity, real estate and other investments reached an agreement to restructure $2.4 billion of credit.

The VIX, a measure of stock-market volatility known as Wall Street’s fear gauge, fell for a third day, dropping 5.4 percent to 27.27. The index has retreated 12 percent since reaching its highest level since July on Oct. 30.

“Stocks are so undervalued and the economic fundamentals and the corporate earnings fundamentals are getting so much stronger,” said Philip Orlando, who helps oversee $400 billion as chief equity market strategist at Federated Investors Inc. in New York. “Investors are starting to put that money back into the market. That’s why we’re looking at a two-month rally here that will take us up to the 1,200 level” on the S&P 500.

The S&P 500 yesterday climbed for a second day as Warren Buffett agreed to buy Burlington Northern Santa Fe Corp., spurring optimism that equities will continue to rebound after $11.6 trillion in government spending, lending and guarantees returned the economy to growth. The index has rallied 56 percent from a 12-year low in March.

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

Last Updated: November 4, 2009 14:46 EST