May 6 (Bloomberg) -- U.S. stocks advanced to a four-month high as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.

Citigroup Inc. surged 17 percent as people familiar with the matter said the lender needs only about $5 billion. Zions Bancorporation, the Salt Lake City-based bank, jumped 26 percent on expectations it will be able to raise capital, while Lincoln National Corp. rallied 33 percent on earnings that topped estimates. The gains also came after ADP Employer Services said companies eliminated 491,000 jobs in April, 154,000 fewer than the average economist estimate in a Bloomberg survey.

“I’m truly impressed that the market has held up, led by financials,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There was so much noise surrounding the stress tests. Maybe people are starting to feel enough confidence that we’ll put this behind us and the world will continue.”

The Standard & Poor’s 500 Index added 1.7 percent to 919.53 at 4:08 p.m. in New York, its highest close since Jan. 6. The Dow Jones Industrial Average rose 101.63 points, or 1.2 percent, to 8,512.28. Europe’s Dow Jones Stoxx 600 Index climbed 1.4 percent, while the MSCI Asia Pacific Index rose 0.5 percent. Almost two stocks gained for each that fell on the New York Stock Exchange.

Stock-index futures fell before the open of exchanges on concern over how much capital banks would need to raise following the stress tests. People familiar with the matter said last night that Bank of America Corp. needs about $34 billion. Futures reversed declines as the ADP data eased concern rising unemployment will trigger more credit losses.

Stress Tests

Bank shares extended gains during the day as details of the stress tests trickled out.

The S&P 500 this week erased its loss for 2009, closing higher on May 4 as reports on home sales and manufacturing in China boosted confidence the global recession is easing. The benchmark index is now up 1.8 percent this year following a 38 percent tumble last year, its worst annual decline since the Great Depression.

Bank of America, the biggest U.S. bank by assets, rose $1.85 to $12.69. Citigroup added 55 cents percent to $3.86. JPMorgan Chase & Co., which people familiar with the matter said doesn’t need a deeper reserve against losses, gained 6.9 percent to $37.22.

Capital Needs

Zions Bancorporation surged $3.33, or 26 percent, to $16.10 as investors speculated the lender’s ability to raise capital has increased.

Regulators have determined that Bank of America needs to raise the most capital among the 19 biggest U.S. banks subjected to stress tests. Wells Fargo & Co. requires about $15 billion, while GMAC LLC’s need is $11.5 billion, one person said. Wells Fargo, the fourth-largest U.S. bank, jumped 16 percent to $26.84.

Goldman Sachs Group Inc., Morgan Stanley, MetLife Inc., JPMorgan, Bank of New York Mellon Corp. and American Express Co. were deemed not to need additional funds, the results show. All their shares closed higher.

Losses from the credit crisis since the start of 2007 have swelled to $1.38 trillion, according to data compiled by Bloomberg. Banks worldwide may be asked to raise minimum capital reserves by several percentage points to help them weather the next financial crisis, said Nout Wellink, chairman of the Basel Committee on Banking Supervision.

Financials Rebound

The S&P 500 Financials Index of 80 banks, insurers and investment firms climbed 8.1 percent today and has more than doubled from a 17-year low reached on March 6 on speculation that the worst of the credit crisis is over. Lenders from Bank of America to Citigroup spurred the rebound by saying they made money at the start of 2009.

U.S. stocks may continue their two-month rally as investor appetite for risk returns, Richard Bernstein, the former chief investment strategist at Bank of America, said in a Bloomberg Radio interview. He said he’s still looking for signs of an economic rebound and improving employment reports will be “critical” to a recovery.

“We’re turning the corner on the economy,” said James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis.

Lincoln National, Disney Beat

Lincoln National surged 33 percent to $15.57 for the top gain in the S&P 500. The Philadelphia-based life insurer reported first-quarter profit excluding some items of 66 cents a share, beating analyst estimates by 72 percent.

Walt Disney added $2.72, or 12 percent, to $25.87, the highest closing price in six months. The world’s biggest media company reported second-quarter earnings excluding some items of 43 cents a share, beating the average analyst estimate by 7.5 percent, after cutting jobs at its parks and TV division. Barclays Plc raised its rating on the stock to “overweight’” from “underweight.”

A gauge of 39 energy shares rose 3.6 percent for the second-biggest gain in the S&P 500 among 10 industry groups, as crude oil rose above $56 a barrel for the first time since November on a smaller-than-forecast supply gain.

Exxon Mobil Corp., the world’s largest company by market value, rose 1.4 percent to $68.58. Chevron Corp. added 3.6 percent to $68.11.

Dow Chemical Co. fell 7 percent to $15.19. The company said it will sell stock to repay loans used to acquire Rohm & Haas Co. About $1 billion will be raised from shares offered by the company and $625 million will be raised from shares offered through two investors, Dow said.

Garmin, Adobe

Garmin Ltd. had the biggest drop in the Nasdaq-100 Index, falling 15 percent to $21.83. The largest U.S. maker of navigation devices reported sales and profit that trailed analyst estimates, hurt by lower orders for car-focused gadgets.

Adobe Systems Inc. dropped 2 percent to $26.35. The world’s biggest maker of graphic-design software was downgraded to “underweight” from “neutral” at Atlantic Equities LLP.

General Motors Corp. plunged 10 percent to $1.66 for the biggest decline in the Dow average. The automaker will probably report its eighth straight quarterly loss tomorrow. GM may lose $11.34 a share, almost double the loss for the same quarter a year ago, according to the estimates of five analysts surveyed by Bloomberg.

Cisco Systems Inc. climbed 3.4 percent to $20.27 in extended trading after the largest maker of networking equipment posted third-quarter profit that topped analysts’ estimates after the close of trading.

The ADP job figures that triggered the market’s early gains comprise only private employment and don’t take into account hiring by government agencies.

The Labor Department’s monthly jobs report, scheduled for release in two days, may show the U.S. unemployment rate climbed to 8.9 percent in April as companies shrank payrolls by 603,000, according to economists’ estimates compiled by Bloomberg. That would mark a 16th consecutive month of job cuts, pushing the number of positions lost in the current downturn to almost 6 million.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: May 6, 2009 16:50 EDT