May 22 (Bloomberg) -- Financial and real-estate companies led most U.S. stocks higher for a third day after Treasury Secretary Henry Paulson said the slump in housing is ``largely'' over.

Washington Mutual Inc., Citigroup Inc. and all 16 homebuilders in Standard & Poor's indexes rose on speculation demand for housing may rebound. MGM Mirage surged the most since 1989 after billionaire Kirk Kerkorian said he wants to buy the company's Bellagio Hotel & Casino in Las Vegas.

``The stars of the day are the homebuilders,'' said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York, which manages about $10 billion. ``Investors feel that the worst is over for those stocks.''

Four stocks advanced for every three that declined on the New York Stock Exchange. Energy shares pushed down the S&P 500 Index after it briefly surpassed its record close, while the Dow Jones Industrial Average slipped for a second day. The Nasdaq Composite Index posted its third consecutive gain.

The Dow industrials fell 2.93 to 13,539.95. The S&P 500 lost 0.98, or 0.1 percent, to 1524.12. The Nasdaq added 9.23, or 0.4 percent, to 2588.02, aided by a gain in Intel Corp.

The Russell 2000 Index, a benchmark for companies with a median market value of $664 million, added 0.8 percent to 839.92. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, gained 0.1 percent to 15,372.78. Based on its advance, the value of stocks increased by $21.1 billion.

Treasuries declined, pushing the benchmark 10-year note's yield to a three-month high on speculation the economy is gaining momentum. Richmond Federal Reserve President Jeffrey Lacker told CNBC that investors and traders may be underestimating the central bank's resolve to tame inflation, which remains too high.

The dollar rose against the euro.

`Largely Contained'

Paulson, also speaking to CNBC, said the housing slump was ``largely contained'' and that market's correction was mostly ``behind us.''

Washington Mutual, the largest U.S. savings and loans, added $1.12 to $44.08. Citigroup, the nation's biggest bank, gained 24 cents to $55.08.

Homebuilders, which are in their second year of slowing sales as a glut of unsold houses reduces demand, climbed 3.5 percent as a group. Lennar Corp., the biggest U.S. builder by sales, gained $1.09 to $46.50. D.R. Horton Inc., the No. 2, added 95 cents to $23.77.

MGM jumped $17.03, or 27 percent, to $79.98. Tracinda Corp., Kerkorian's holding company, said it intends to negotiate the purchase of the Bellagio and the CityCenter complex, which is under construction. MGM said its board ``will respond in due course.''

Kerkorian

Kerkorian, who owns a majority stake in MGM through Tracinda, also said he's studying options including a ``financial restructuring'' for the rest of MGM.

Other casino shares rallied. Las Vegas Sands Corp., which is run by billionaire Sheldon Adelson, rose $4.28 to $80.19. Steve Wynn's Wynn Resorts Ltd. gained $6.96 to $101.15. Boyd Gaming Corp. climbed $2.60 to $49.64.

Mortgage lenders climbed after Fremont General Corp., whose loans to risky borrowers helped trigger the subprime mortgage crisis, agreed to sell its commercial real-estate unit for $1.9 billion and replaced its top three executives.

Fremont surged $2.89, or 41 percent, to $10 for its steepest advance since 1983. The company will sell its commercial real- estate unit to IStar Financial Inc. for about 30 percent of the net loan portfolio and a ``participation interest'' equal to 70 percent.

Accredited Home Lenders Holding Co. rose 63 cents to $13.38. Silver Point Capital LP said in a regulatory filing that it boosted its stake in the San Diego-based subprime mortgage company to 5.2 percent from 3.8 percent.

NovaStar Financial Inc., another subprime lender, added 42 cents to $6.38.

`Buzzed on Stocks'

``Merger and acquisition activity has been key over the last three or four weeks,'' said Chris Johnson, chief investment strategist at Johnson Research Group in Cincinnati. ``A lot of activity has been hitting the wires and getting the fundamental people a little buzzed on stocks.''

Intel, the world's largest semiconductor maker, climbed the most in the Dow average and paced an advance in technology stocks. Intel and STMicroelectronics NV plan to combine their unprofitable flash-memory businesses into a new company, creating the world's largest maker of chips that store software in mobile phones.

Shares of Intel rose 36 cents, or 1.6 percent, to $22.99. Technology companies in the S&P 500 added 0.2 percent, the best performance among 10 industries.

Scaling New Heights

The S&P 500 earlier rose as high as 1529.24, topping its March 2000 record close of 1527.46 for a second straight day. While takeovers have spurred gains this year, earnings growth has been the main driver in the S&P 500's ascent from its October 2002 bottom.

Stocks in the benchmark trade for about 18 times reported earnings, 34 percent cheaper than the average this decade. For some investors, that suggests stocks can keep rising.

``If you went back to late 1999 and compared the S&P now and then and looked at the earnings, they have almost doubled and yet here we are hoping to get to the same level,'' said Ernie Ankrim, who helps manage about $200 billion as chief investment strategist at Russell Investment Group in Tacoma, Washington.

``It's the earnings that have grown without compensation over the last few years that make this value not nearly as scary as it would have been in 1999,'' he said.

Retailers Slide

Some 1.48 billion shares changed hands on the Big Board, 7.8 percent less than the three-month daily average.

Energy shares dropped 0.9 percent as a group. Oil futures declined 2 percent to $64.97 a barrel on signs a government report tomorrow will show U.S. gasoline stockpiles jumped. Exxon Mobil Corp. slipped 82 cents to $82.77.

Retailers declined after Staples Inc. tempered its earnings forecast and American Eagle Outfitters Inc. predicted earnings that disappointed investors.

Staples, the world's largest office-supplies retailer, said second-quarter and full-year earnings per share will be at the ``low end'' of its forecast of 15 percent to 20 percent growth. The stock dropped 62 cents to $25.05.

American Eagle, a teen-clothing retailer, predicted second- quarter profit of 34 cents to 36 cents a share. That trailed the 38-cent average analyst estimate compiled by Bloomberg. Its shares fell $1.27 to $28.06.

AutoZone, Monster Slump

AutoZone Inc. declined $1.88 to $132.11. The No. 1 U.S. seller of automobile parts posted fiscal third-quarter sales of $1.47 billion, missing the $1.48 billion average analyst estimate compiled by Bloomberg.

Monster Worldwide Inc. fell the most in the S&P 500. A stock sale by the Internet job-search site's founder and ex-chief executive officer reduces the odds the company will be sold at a premium, according to Goldman, Sachs & Co. analyst Peter Appert.

Securities and Exchange Commission filings last week show Andrew McKelvey disclosed he sold 1 million shares of common stock. Monster tumbled $2.53, or 5.1 percent, to $47.25.

Lockheed Martin Corp. slumped the most since November 2002 after Cowen & Co. downgraded shares of the world's largest defense company to ``neutral'' from ``outperform,'' citing slower earnings growth through next year. The shares declined $4.57, or 4.6 percent, to $94.22.

Accredited Home Lenders Holding Co. (LEND US)
American Eagle Outfitters Inc. (AEO US)
AutoZone Inc. (AZO US)
Boyd Gaming Corp. (BYD US)
Citigroup Inc. (C US)
D.R. Horton Inc. (DHI US)
Exxon Mobil Corp. (XOM US)
Fremont General Corp. (FMT US)
Intel Corp. (INTC US)
Las Vegas Sands Corp. (LSV US)
Lennar Corp. (LEN US)
Lockheed Martin Corp. (LMT US)
MGM Mirage (MGM US)
Monster Worldwide Inc. (MNST US)
NovaStar Financial Inc. (NFI US)
Staples Inc. (SPLS US)
Washington Mutual Inc. (WM US)
Wynn Resorts Ltd. (WYNN US)

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

Last Updated: May 22, 2007 17:21 EDT