April 1 (Bloomberg) -- U.S. stocks advanced for a second day as sales of existing homes unexpectedly increased and a manufacturing gauge topped economists’ estimates, bolstering optimism that the worst of the recession is over.

D.R. Horton Inc. led gains in 12 of 13 shares in an index of homebuilders as the National Association of Realtors reported a 2.1 percent increase in pending home resales in February. Citigroup Inc. and JPMorgan Chase & Co. added at least 5.8 percent after Treasury Secretary Timothy Geithner said there are signs that financial markets are recovering.

The Standard & Poor’s 500 Index rose 1.7 percent to 811.08 a day after capping its best monthly rally since 2002. The Dow Jones Industrial Average increased 152.68 points, or 2 percent, to 7,761.6. The MSCI World Index of 23 developed nations added 1.7 percent, with Ireland and Denmark posting gains of more than 4 percent to lead the advance.

“From a fundamental standpoint the table has been set for financial markets to stabilize and rebound,” said William Greiner, chief investment officer at UMB Bank, which manages $9.5 billion in Kansas City, Missouri. With stocks at what he thinks will be the low end of their range over the next five years, Greiner recommended clients begin “putting some money back to work in the equity market.”

U.S. stocks rose yesterday, giving the S&P 500 an 8.5 percent advance in March, as investors bought the month’s best- performing companies. The S&P 500 has climbed 20 percent since March 9, trimming its 2009 decline to 10 percent, as banks from Citigroup to Bank of America Corp. said they made money in the first two months of 2009 and Geithner unveiled plans to rid financial firms of toxic assets.

Homebuilders Advance

D.R. Horton rallied 4.4 percent as a gauge of homebuilders across S&P indexes posted its first gain in four days. Economists project the housing downturn may ease further as efforts to thaw credit and offer tax breaks to first-time buyers begin to take hold and foreclosure-driven declines in prices and lower mortgage rates lure more buyers.

Centex Corp., the second-largest U.S. homebuilder by sales, rose 2.9 percent to $7.72. KB Home, the fourth-largest, gained 2.8 percent to $13.55.

Citigroup, which has received about $45 billion in U.S. bailout funds, rose 5.9 percent to $2.68 for the second biggest gain in the Dow industrial average after American Express Co. JPMorgan, the largest U.S. bank by market value, climbed 5.9 percent to $28.14.

Geithner said in a Bloomberg Television interview that financial markets appeared to be recovering and praised international efforts to counter the economic crisis.

‘Encouraging Signs’

“You’re seeing encouraging signs of improvement in our markets -- we want to reinforce that,” Geithner said. “I’ve never seen this much support, this much consensus.”

General Motors Corp. fell as much as 19 percent before paring its loss and closing down 0.5 percent at $1.93. President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for GM to restructure and become competitive, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who were briefed on the GM and Chrysler situation before the president said two days ago that the automakers’ viability plans were insufficient.

Huntington Bancshares Inc. rose 15 percent to $1.90. The Ohio-based bank restructured its relationship with Franklin Credit Management Corp. for a 0.29 percentage point increase in its tangible common equity ratio and one-time savings of $160 million, it said.

Economy Watch

Nine of 10 industry groups in the S&P 500 advanced as a stronger-than-expected reading in the Institute for Supply Management’s factory index coupled with the housing data signaled the economy may be stabilizing. The ISM’s manufacturing index climbed to 36.3 in March, a third consecutive gain that brought it closer to the reading of 50 that differentiates between contraction and growth.

The data helped the market overcome an early slump spurred by concern over GM and a report by ADP Employer Services that showed employers cut 742,000 workers in March, more than economists estimated.

The market’s gains were limited as Celgene Corp. led S&P 500 health-care companies, the index’s second-biggest group, to the only decline among 10 industries.

Health Shares Slump

Celgene fell 13 percent, the most since September, to $38.47. The biotechnology company that makes most of its sales from the cancer drug Revlimid said it expects 2009 profit at the lower end of its previously forecast range.

Apollo Group Inc. lost 15 percent to $66.46, the steepest lost in the S&P 500. The owner of the for-profit University of Phoenix was cut to “neutral” from “outperform” at Robert W. Baird Ltd., which cited lower 2010 earnings estimates, increased investments and potentially higher bad debt.

Aflac Inc. dropped 3.2 percent to $18.75. S&P downgraded hybrid debt issued by more than 60 European firms. Aflac, the largest seller of supplemental insurance, said in February that downgrades of such securities may force the company to take more writedowns this year.

The ouster of GM and Citigroup from News Corp.’s global stock index is leading to calls for Rupert Murdoch’s company to also remove them from the 112-year-old Dow Jones Industrial Average.

GM and Citigroup were dropped from the 150-stock Global Dow after “extraordinary market conditions” pushed down the shares more than 88 percent in the past year, News Corp. said in a March 27 press release. They are among five stocks in the 30- company Dow industrials that closed below $10 this year.

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

Last Updated: April 1, 2009 16:33 EDT