Jan. 28 (Bloomberg) -- U.S. stocks rose, extending their first weekly gain of the year, after odds increased that the Federal Reserve will cut its benchmark lending rate by half a percentage point this week to prop up the economy.

Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. climbed in New York Stock Exchange trading and led financial shares to their fourth advance in five days on expectations that reduced borrowing costs will boost profits. Lennar Corp. and Centex Corp. rallied, sending homebuilders' shares to the highest level since October, as the prospect for lower interest rates overshadowed a government report showing the biggest yearly drop in new-home sales on record.

The Standard & Poor's 500 Index added 23.36, or 1.8 percent, to 1,353.97. The Dow Jones Industrial Average increased 176.72, or 1.5 percent, to 12,383.89. The Nasdaq Composite Index gained 23.71, or 1 percent, to 2,349.91. More than five stocks rose for every one that fell on the NYSE.

``We actually expect the market to rally somewhat based on Fed easing actions,'' said Dean Gulis, who helps manage about $3 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``The Fed will do what's necessary to get us through the current credit issues.''

The S&P 500 rebounded 2.4 percent from its low of the day after the Commerce Department's report that new-home purchases slid to a 12-year low prompted traders to increase bets on a half-point rate cut by the Fed. Stocks fell today in Europe and Asia, with China's benchmark index down 6.8 percent.

Banks Rally

Warren Buffett's plan to expand his bond insurer nationwide also helped boost financial shares, last year's worst-performing industry.

Benchmark indexes have dropped this year on concern a slowdown in the world's largest economy will lead to the biggest decline in quarterly profits since 2001. Today's gains trimmed the S&P 500's loss in 2008 to 7.8 percent. The Dow average is down 6.6 percent in 2008 and the Nasdaq has dropped 11 percent.

All 10 of the main industry groups in the S&P 500 climbed, led by financial firms, phone companies and raw-materials producers.

Bank of America added $1.72 to $41.20. JPMorgan climbed $1.93 to $45.57. Citigroup rose $1.01 to $27.65.

Goldman Sachs Group Inc., the largest U.S. securities firm by market value, climbed $4.88 to $196.25. American International Group Inc., the world's biggest insurer by assets, rose $1.53 to $54.75.

Fed Watch

Traders see an 86 percent chance the central bank will cut its benchmark lending rate to 3 percent from 3.5 percent on Jan. 30, according to Fed funds futures. That's up from 70 percent on Jan. 25 and no chance a week ago. Financial stocks, which comprise 18 percent of the S&P 500's value, have rallied 11 percent from a four-year low on Jan. 18, pushed higher by the Fed's surprise 0.75 percentage point rate cut last week.

Berkshire Hathaway Inc.'s Class A shares slipped $700 to $138,400. Buffett's insurance and investment company agreed to expand its new bond insurer nationwide in exchange for expedited licensing, a group of U.S. state regulators said today.

Berkshire's new business may help stabilize debt markets, which have been roiled by speculation MBIA Inc. and Ambac Financial Group Inc., the industry's biggest guarantors, will lose their top credit rankings. A downgrade may affect $2.4 trillion in assets industrywide, and Fitch Ratings has already stripped its AAA rating from Ambac after losses tied to subprime loans.

New York regulators said today they have hired advisory firm Perella Weinberg Partners LP for guidance on a plan to assist bond insurers struggling to maintain their credit ratings. MBIA climbed 65 cents to $14.85. Ambac slipped 41 cents to $11.13.

Builders Gain

Higher expectations for the Fed's rate reduction helped homebuilders in S&P indexes climb 5.7 percent as a group. The S&P Supercomposite Homebuilding Index had dropped as much as 4.4 percent today after the Commerce Department said new-home sales decreased 4.7 percent to an annual pace of 604,000 in December, the lowest since February 1995 and capping the biggest annual decline on record.

Centex gained $2.26 to $28.64. Lennar added $1.52 to $18.50. Pulte Homes Inc., the country's largest builder by sales, climbed 68 cents to $13.78. The stock's 31 percent advance this year is the most in the S&P 500.

``The housing market will turn around here in 2008,'' said Lincoln Anderson, the Boston-based chief investment officer of LPL Financial Services, which helps oversee about $237 billion. Lower interest rates ``should be conducive to a turnaround.''

SLM, Corning

SLM Corp. gained 57 cents to $20.45. The biggest U.S. student lender, also known as Sallie Mae, received $31 billion in new bank financing needed to keep the company running and ended a court battle over a buyout bid that collapsed last year.

Corning Inc. added 73 cents to $23.10. The biggest maker of glass for flat-panel displays forecast sales and profit that topped analysts' estimates on rising television sales.

Fourth-quarter earnings have decreased 40 percent on average for the 176 companies in the S&P 500 that have reported results so far, according to Bloomberg data. Excluding financial companies, S&P 500 members have posted profit growth of 23 percent on average, according to Bloomberg data.

Analysts forecast profit excluding certain items at all S&P 500 companies fell 18 percent on average in the fourth quarter, the biggest decline in six years, according to a Bloomberg survey.

Sprint, AT&T Gain

Sprint Nextel Corp. gained 52 cents, or 6.3 percent, to $9.97 and led a group of phone companies in the S&P 500 to a 2.6 percent advance, the second-biggest gain among 10 industries.

Barron's said Sprint shares are ``simply too cheap to ignore'' after losing almost a third of their value this year. Sprint may be a buyout target after the plunge in share price, and its unused wireless spectrum may attract investors such as Google Inc., Barron's said. AT&T Inc. climbed $1.14 to $36.40. Director August Busch III bought 63,000 AT&T shares for $36.10 each on Jan. 25, according to a U.S. Securities and Exchange Commission filing. Busch's purchase was his second on record, according to data compiled by InsiderScore.com. Busch, formerly the chief executive officer of Anheuser-Busch Companies Inc., currently sits on the brewer's board.

U.S. stocks posted the first weekly gain of 2008 last week after the Fed's surprise interest-rate cut and a government plan to revive growth improved prospects the economy may skirt a recession. Investors may get further clues on the outlook for a fiscal stimulus program tonight as President George W. Bush delivers his final State of the Union speech.

`A Bit Soft'

McDonald's slipped $3.03, or 5.6 percent, to $51.07 today for the biggest decline in the Dow average. The company said sales at U.S. restaurants open at least 13 months were unchanged in December, compared with the median estimate of a 2.8 percent gain from four analysts surveyed by Bloomberg News.

``The news from McDonald's that same-store sales were flat probably has some people concerned,'' said Peter Jankovskis, who helps oversee about $1.25 billion as co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois. ``It suggests the economy is a bit soft.''

Alliance Data Systems Corp. tumbled $23.12, or 35 percent, to $42.48, the most since its initial public offering in June 2001. Blackstone Group LP's $6.6 billion takeover of the processor of credit-card payments is near collapse after Blackstone said bank regulators had placed extraordinary requirements on the deal. Blackstone, manager of the world's largest LBO fund, slipped 21 cents to $19.15.

YRC, CME

YRC Worldwide Inc. lost $2.78 to $16.08 in Nasdaq Stock Market trading. The biggest U.S. trucking company by sales reported a fourth-quarter profit excluding some items of 1 cent a share, trailing the 53-cent average of 14 analysts' estimates compiled by Bloomberg.

CME Group Inc. lost $4 to $625. The world's largest futures exchange is in preliminary talks to acquire Nymex Holdings Inc. for about $11.1 billion to gain the biggest energy-trading market. Nymex climbed $9.34 to $116.50.

The MSCI World Index gained 0.3 percent, rallying from a decline of as much as 1.4 percent earlier today. Japanese stocks fell for the first time in four days, while China's CSI 300 Index declined to the lowest since November. Europe's Dow Jones Stoxx 600 Index retreated 1.1 percent.

Increasing concern that the world's biggest economy will slide into recession has pushed two-thirds of the world's benchmark indexes into so-called bear markets, which are marked by a drop of at least 20 percent from a high.

Global Concern

The declines show that a slowdown in the U.S. economy still matters to Brazil, Russia, India and China, the so-called BRIC nations that some investors had viewed as a haven from a slump in the U.S.

PetroChina Co., China's biggest oil company, dropped 5.7 today in Hong Kong trading and is down 44 percent from its Nov. 1 record as the collapse of the subprime U.S. mortgage market threatens growth across the globe. The MSCI Emerging Markets Index fell 2.1 percent today and is 19 percent below its Oct. 29 record.

The Chicago Board Options Exchange Volatility Index, or VIX, dropped 4.5 percent to 27.78. Lower readings in the so- called VIX, derived from prices paid for S&P 500 options, indicate traders expect smaller share-price swings in the next 30 days.

The Russell 2000 Index, a benchmark for companies with a median market value of $535.8 million, climbed 2 percent to 702.39. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.8 percent to 13,660.71. Based on its advance, the value of stocks increased by $296.4 billion.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.

Last Updated: January 28, 2008 17:35 EST