July 17 (Bloomberg) -- The Dow Jones Industrial Average rose, capping its best weekly gain since March, as International Business Machines Corp. rallied on an increased earnings forecast and housing starts unexpectedly jumped.

IBM surged 4.3 percent as cost cuts improved its profit outlook. JPMorgan Chase & Co., KB Home and DR Horton Inc. gained as builders broke ground on the most homes in seven months. Four stocks fell for every three that rose on the New York Stock Exchange. The Standard & Poor’s 500 Index slipped, giving it a weekly gain to 7 percent.

“The large, multi-national companies that have more than 50 percent of their business overseas are doing quite well in this earnings season,” said Kevin Rendino, who manages $10 billion including IBM shares at BlackRock Inc. in Plainsboro, New Jersey. “It’s definitely a stock picker’s market.”

The Dow added 32.12 points, or 0.4 percent, to 8,743.94 at 4:05 p.m. in New York. The S&P 500 slipped less than 0.1 percent to 940.38. The Russell 2000 Index fell 0.5 percent.

The Dow advanced 7.3 percent this week after analyst Meredith Whitney said bank shares will rally and companies from Goldman Sachs Group Inc. to Intel Corp. and Johnson & Johnson reported results that topped estimates. The S&P 500’s weekly gain was also its best since March.

Earnings beat analysts’ estimates by an average of 16 percent for the 38 companies in the S&P 500 that released results since July 8. Profits fell an average 35 percent in the second quarter and will drop 21 percent from July through September, according to analysts’ estimates compiled by Bloomberg. The S&P 500 has rallied 39 percent from its 12-year low on March 9 amid speculation the economy is recovering.

Lowered Expectations

“Analysts had lowered their expectations to the point that most companies seem to be beating in one fashion or another,” said William Dwyer, senior investment officer at Baltimore-based MTB Investment Advisors Inc., which manages $13 billion.

IBM advanced $4.78 to $115.42, the highest since Sept. 30. The world’s biggest computer-services provider was the second technology company in the Dow this week to post forecasts that beat estimates, following Intel on July 14, indicating they are coping with the worst economic slump in five decades.

Technology companies, the best-performing industry group in the S&P 500 this year, extended their 2009 gain to 31 percent, nearly double the 16 percent return of commodity producers, the next-best group.

IBM made almost 65 percent of its revenue outside the U.S. last year, while Intel Corp. made all but 15 percent of its sales in other countries. Growth in Emerging and developing economies will outpace advanced economies this year and next year, the International Monetary Fund predicted July 8.

Growth Forecasts

The IMF forecast growth of 4.7 percent next year and 1.5 percent this year for emerging economies. Developed economies will grow 0.6 percent in 2010 after shrinking 3.8 percent this year, the Washington-based lender said. The U.S. economy will shrink 2.6 percent this year and grow 0.8 percent next year, the IMF said.

CIT Group Inc., the 101-year-old commercial finance company facing bankruptcy after failing to receive federal guarantees for its bonds, said it’s in talks with potential lenders to secure funding. The shares surged nearly 71 percent to 70 cents after slumping 75 percent in U.S. trading yesterday.

KB Home, the Los Angeles-based homebuilder that targets first-time buyers, rose 4.2 percent to $14.26. D.R. Horton, the largest U.S. homebuilder by market value, added 2.7 percent to $9.90. Construction of single-family dwellings jumped by the most since 2004, Commerce Department data released today showed.

GE, Google Limit Gains

The market’s gains were limited today as General Electric Co. slid 6.1 percent, the most in three months, to $11.65 after second-quarter sales trailed estimates. GE reported revenue of $39.1 billion, compared with analysts’ average estimate of $41.95 billion. Profit from continuing operations exceeded the consensus estimate.

Google Inc. fell 2.8 percent to $430.25 as it reported a sales gain of 2.9 percent from a year earlier, down from growth of 6.2 percent in the first quarter. The company’s ads fetched lower prices as the recession crimped marketing budgets.

“History speaks for itself on slowing growth stories,” said Douglas Christopher, partner and director of research at Crowell Weedon & Co. in Los Angeles, which manages $5 billion. “People are looking for less complication at a reasonable price.”

Bank of America Corp. slipped 2.1 percent to $12.89 even after the biggest U.S. lender reported profit that declined less than most analysts estimated. It still rose 8.5 percent on the week.

‘Step Back’

Marshall & Ilsley Corp. fell 12 percent to $4.63 for the biggest drop in the S&P 500. Wisconsin’s largest bank reported a third successive quarterly loss as the company moved to write down problem loans and strengthen its balance sheet. Its shares still gained 3.8 percent on the week.

“Going into earnings you saw the entire market up on some individual, better-than-expected earnings,” said Greg Woodard, portfolio strategist at Manning & Napier in Fairport, New York, which manages $19 billion. “Now investors are going to step back and digest what’s going on with actual earnings.”

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: July 17, 2009 16:46 EDT