Oct. 5 (Bloomberg) -- U.S. stocks rose, rebounding from the first two-week decline since July, as Goldman Sachs Group Inc. recommended large banks and a report showed service industries returned to growth after 11 months of contraction. Gold and oil advanced as the dollar weakened.

Wells Fargo & Co. rallied 6.9 percent and JPMorgan Chase & Co. added 4.6 percent as Goldman Sachs said big banks will outperform regional lenders. Nordstrom Inc. and Limited Brands Inc. climbed at least 7.7 percent after the Institute for Supply Management’s gauge of non-manufacturing businesses topped estimates. Brocade Communications Systems Inc. jumped 19 percent, the most in seven weeks, on takeover speculation.

The Standard & Poor’s 500 Index added 1.5 percent to 1,040.46 at 4:39 p.m. in New York, its steepest gain in a week. The Dow Jones Industrial Average gained 112.08 points, or 1.2 percent, to 9,599.75. Europe’s benchmark index advanced 0.9 percent, while Asia’s slipped 0.7 percent. Seven stocks rose for each that fell on the New York Stock Exchange.

“Third-quarter earnings season is going to be pretty strong,” said Noman Ali, part of a group that manages $20 billion in Toronto for MFC Global Investment Management. “Analysts are way too conservative coming out of recessions. Estimates will have to move higher because actual earnings will come in better than expected.”

The S&P 500 surged 32 percent in the past two quarters amid expectations the worst of the global recession is over. Lower- than-forecast data on manufacturing and jobs last week spurred concern the seven-month rally may have outpaced the prospects for earnings growth. New York University Professor Nouriel Roubini said Oct. 3 that “markets have gone up too much, too soon, too fast.”

Alcoa, Gold

Alcoa is scheduled to release third-quarter results on Oct. 7, the first company in the Dow average to report earnings. Analysts’ estimates compiled by Bloomberg predict companies will report a ninth straight quarter of declining profits before returning to growth in the final three months of the year.

Gold futures touched the highest price in more than a week as the dollar weakened, boosting the appeal of the precious metal as an alternative investment. Gold has gained 15 percent this year, while the dollar declined 5.7 percent.

Gold futures for December delivery climbed $13.50, or 1.3 percent, to $1,017.80 an ounce on the New York Mercantile Exchange’s Comex division, the highest settlement price for a most-active contract since Sept. 16. Earlier, the metal reached $1,018.90, the highest price since Sept. 24. Futures reached $1,033.90 on March 17, 2008, the all-time high in New York.

In London, gold for immediate delivery climbed $13.80, or 1.4 percent, to $1,016.60 an ounce at 7:06 p.m. local time.

Oil, Gas Rise

Crude oil rose after the stock market climbed and the dollar fell. Oil for November delivery climbed 46 cents to settle at $70.41 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures have traded between $65.05 and $75 since Aug. 1. Prices have gained 58 percent this year.

Natural gas increased above $5 per million British thermal units for the first time in almost nine months as below-normal temperatures forecast for the eastern two-thirds of the U.S. will lift heating-fuel demand.

Cold weather will advance into the Midwest and be in place through at least Oct. 14, according to a six-to-10-day outlook from MDA Federal Inc.’s EarthSat Energy Weather of Rockville, Maryland. Gas demand is highest in the winter, when fuel use exceeds production and imports. About 72 percent of Midwest households rely on gas for heating.

Natural gas for November delivery rose 26.9 cents, or 5.7 percent, to settle at $4.987 per million Btu at 2:52 p.m. on the New York Mercantile Exchange. Gas earlier touched $5.008, the highest intraday price since Jan. 15.

Dollar Declines

The dollar declined against the euro as stocks rose after Goldman Sachs Group Inc. recommended large banks and a report showed U.S. service industries grew, spurring investors to buy riskier assets at the expense of the greenback.

The dollar slid 0.5 percent to $1.4655 per euro at 3:10 p.m. in New York, from $1.4576 on Oct. 2. It fell to a one-year low of $1.4844 on Sept. 23. The yen declined 0.2 percent to 131.17 per euro, from 130.90, and increased 0.3 percent to 89.51 per dollar, from 89.81 at the end of last week.

Treasuries were little changed as the increase in stocks tempered expectations for demand at this week’s auction of $78 billion in notes and bonds.

The Treasury’s sale of $7 billion of 10-year inflation- protected notes today drew a yield of 1.51 percent, compared with a forecast of 1.56 percent in a Bloomberg News survey of seven of the Fed’s primary dealers. The bid-to-cover ratio, which gauges investor demand by comparing total bids with the amount of securities offered, was the most since January 1999.

The benchmark 10-year note yielded 3.21 percent at 2:02 p.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 was at 103 14/32.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net.

Last Updated: October 5, 2009 16:56 EDT