July 30 (Bloomberg) -- U.S. stocks rebounded from the worst two-day skid since 2003 after Wall Street's biggest securities firms, led by Citigroup Inc., Goldman Sachs Group Inc. and Bank of America Corp., said the sell-off made banks, homebuilders and retailers relative bargains.

Nordstrom Inc., the Seattle-based luxury retailer, climbed the most in almost two years. Wells Fargo & Co., JPMorgan Chase & Co. and American Express Co. carried financial shares to their biggest advance since July 12. KB Home gained for the first time in seven days after Citigroup said ``hysteria'' has driven the 36 percent drop in construction firm shares this year.

The Standard & Poor's 500 Index added 14.96, or 1 percent, to 1473.91. The Dow Jones Industrial Average rallied 92.84, or 0.7 percent, to 13,358.31. The Nasdaq Composite Index rose 21.04, or 0.8 percent, to 2583.28. Benchmark indexes in China, Brazil and Mexico jumped more than 2 percent, while shares in Europe fell for a fifth day.

``We're positive on the market,'' said Joe Veranth, who oversees $3 billion at Dana Investment Advisors Inc. in Brookfield, Wisconsin. ``At 15 times this year's earnings, we think the market is a pretty good bargain.''

The S&P 500's biggest drop since March 2003 last week left its shares valued at 15.5 times estimated profit, the lowest since January 1991 when compared with actual earnings, according to Bloomberg data. Second-quarter earnings at S&P 500 companies are poised to top 10 percent for the 20th straight quarter.

Global Rebound

China's CSI 300 Index climbed 2.4 percent, Brazil's benchmark Bovespa Index gained 3.1 percent and Mexico's Bolsa index rallied 2.2 percent. Europe's Dow Jones Stoxx 600 Index fell 0.2 percent.

KB Home rose 31 cents to $31.59. Lennar Corp., the biggest U.S. homebuilder, climbed for the first time in seven days, adding 4 cents to $31.11. A gauge of 16 homebuilders in S&P indexes advanced 0.6 percent.

The decline in homebuilder stocks reflects ``hysteria'' and KB Home, the fifth biggest, may advance because of its ability to raise cash, Citigroup analysts wrote today.

Analysts led by Stephen Kim raised Los Angeles-based KB Home to ``buy'' from ``hold,'' citing the sale of a French unit. They reduced their rating on Centex Corp., the fourth-largest, and its shares lost 19 cents to $38.31.

Nordstrom jumped $3.15 to $47.06. Shares of the department- store chain were raised to ``buy'' from ``neutral'' at Goldman on expectations of increased business from affluent shoppers. Goldman analyst Adrianne Shapira set a share-price forecast of $57.

Financial Shares Rebound

Financial shares in the S&P 500 rebounded 1.2 percent as a group and contributed the most to the overall index's advance.

Wells Fargo & Co., the second-biggest U.S. mortgage lender, gained $1.05 to $34.61. JPMorgan Chase & Co., the third-largest U.S. bank, added 52 cents to $44.75. Citigroup, the biggest U.S. bank, climbed 22 cents to $47.19.

Home Depot Inc. added $1.06 to $37.81. Shares of the world's largest home-improvement retailer could double in the next three years, Barron's said, adding that a stock buyback, store upgrades and gains in cash flow and profit will benefit the company.

Ingersoll-Rand Co. jumped $3.63, or 7.5 percent, to $51.77. Doosan Infracore Co., South Korea's largest maker of construction machinery, agreed to buy Ingersoll-Rand's Bobcat and other moving-equipment units for $4.9 billion. The shares were upgraded to ``buy'' from ``hold'' at Citigroup.

Terex Upgrade

Terex Corp. added $6.13 to $89.28. The maker of construction equipment was upgraded to ``buy'' from ``neutral'' at Goldman, which said global demand for infrastructure equipment, increased share buybacks and lower operating costs will boost earnings.

Stocks tumbled around the world last week on concern higher borrowing costs will slow leveraged buyouts, spur defaults and curb earnings. The Dow average fell 4.2 percent while the S&P 500 lost 4.9 percent in the week.

``The fact that everyone panicked so quickly makes us more bullish,'' said Michael Williams, who helps oversee about $3 billion as managing director of Beamreach Trust in New York. ``When you see panic in the street, that's where you make your money. This is an opportunity.''

Almost five stocks gained for every two that fell on the New York Stock Exchange. Some 2 billion shares changed hands, 26 percent more than the three-month average.

A gauge of U.S. stock volatility dropped from the highest in more than four years. The Chicago Board Options Exchange Volatility Index slipped 14 percent to 20.87. It surged to 24.17, the highest since April 2003, on July 27. Higher readings in the so-called VIX, derived from prices paid for options on the S&P 500, indicate traders expect more volatility in the next 30 days.

Buy After `Drubbing'

Investors should buy U.S. equities and sell bonds following last week's stock-market ``drubbing,'' according to strategists at Banc of America Securities LLC.

Money managers should increase holdings of stocks by 5 percentage points, bringing the total allocation to 60 percent of their assets, Thomas McManus, New York-based chief investment strategist, wrote in a report. He cut his recommendation on bonds by 5 percentage points to 15 percent and kept the remainder in cash and other investments unchanged at 25 percent.

Tobias Levkovich, New York-based chief U.S. equity strategist at Citigroup, wrote that the valuation of stocks is still ``compelling'' and he expects the market to rebound by the end of this year.

Levkovich said investors should buy shares of banks and brokerages including Merrill Lynch & Co., Charles Schwab Corp., Goldman, JPMorgan and Bank of America.

Goodyear Rally

Goodyear Tire & Rubber Co., the largest U.S. tiremaker, added $2.12 to $29.12 for the steepest gain in the S&P 500. The stock, which plunged 23 percent last week, ``offers a compelling entry point for medium-term investors who can weather near-term market volatility,'' JPMorgan Securities Inc. wrote in a note to investors today. ``We continue to see no material change to underlying fundamentals.''

Goodrich Corp., the world's biggest supplier of aircraft landing gear, jumped $2.51 to $63.24 after Credit Suisse raised the shares to ``outperform'' from ``neutral.''

U.S. Treasuries declined the most in two weeks, suggesting investors are becoming more comfortable with risk. The yield on the 10-year note rose almost 5 basis points, or 0.05 percentage point, to 4.81 percent.

Monster

Monster Worldwide Inc. rallied $2.26 to $40.16 after the world's largest network of online job-hunting sites said it will cut 800 jobs, or 15 percent of its staff, following a 28 percent drop in second-quarter profit to $28.6 million, or 21 cents a share. Monster expects the job cuts to save as much as $170 million a year.

Humana Inc. added 27 cents to $65.08. The second-largest provider of U.S.-funded Medicare plans said earnings more than doubled, beating analysts' estimates, as medical costs consumed a smaller share of revenue from premiums.

Verizon Communications Inc., the second-biggest U.S. phone company, fell 49 cents to $41.51. Excluding some costs, profit was 58 cents a share, below the 59 cents expected by analysts in a Bloomberg survey. The Verizon Wireless unit also agreed to buy Rural Cellular Corp. for $757 million.

Amazon

Amazon.com Inc. dropped $1.34 to $82.70 after Barron's said shares of the world's biggest online retailer were too expensive and expansion plans threaten its profit margins.

RadioShack Corp. plummeted $3.25, or 11 percent, to $25.55, the steepest drop in the S&P 500 and the stock's biggest retreat in almost five years. The third-largest U.S. consumer-electronics retailer reported sales declined for the fourth straight quarter, falling 15 percent. The revenue drop was the biggest in eight years as Chief Executive Officer Julian Day, a turnaround specialist who took over a year ago, shut more than 500 stores and kiosks and eliminated 7,000 jobs.

The 326 companies in the S&P 500 that reported second- quarter earnings so far have posted an average gain of 10.2 percent, more than double analysts' estimate of 4.8 percent at the start of the reporting season, according to data compiled by Bloomberg data.

The Russell 2000 Index, a benchmark for companies with a median market value of $644 million, gained 0.8 percent to 784.23. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 14,852.75. Based on its advance, the value of stocks increased by $177 billion.

Amazon.com Inc. (AMZN US)
American Express Co. (AXP US)
Citigroup Inc. (C US)
Goodrich Corp. (GR US)
Goodyear Tire & Rubber Co. (GT US)
Home Depot Inc. (HD US)
Humana Inc. (HUM US)
Ingersoll-Rand Co. (IR US)
JPMorgan Chase & Co. (JPM US)
KB Home (KBH US)
Lennar Corp. (LEN US)
Monster Worldwide Inc. (MNST US)
Nordstrom Inc. (JWN US)
RadioShack Corp. (RSH US)
Terex Corp. (TEX US)
Verizon Communications Inc. (VZ US)
Wells Fargo & Co. (WFC US)

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

Last Updated: July 30, 2007 18:18 EDT