July 27 (Bloomberg) -- U.S. stocks rose, adding to the Dow Jones Industrial Average’s best two-week rally since 2000, as the biggest jump in new-home sales in eight years overshadowed disappointing results from Aetna Inc. and RadioShack Corp.

Centex Corp. rallied 9.1 percent to lead a gauge of homebuilders in the Standard & Poor’s 500 Index to an almost three-month high, and Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. also climbed. New York Times Co. surged 16 percent on speculation profits will rebound. Aetna and RadioShack lost at least 2.7 percent each.

The S&P 500 added 0.3 percent to 982.18 at 4:10 p.m. in New York, the highest level since Nov. 4. The Dow Jones Industrial Average increased 15.27 points, or 0.2 percent, to 9,108.51. The Russell 2000 Index added 0.4 percent to 550.88, the highest close since Oct. 14.

“When you’ve got a good rally, people want to jump in,” said Jonathan Vyorst, senior vice president at New York-based Paradigm Capital Management Inc., which oversees about $1.5 billion. “The potential for mediocre earnings is out there. But if there are a couple good surprises, the market will likely take off.”

The S&P 500 and Dow average have surged 12 percent since July 10 after companies including Caterpillar Inc. and 3M Co. reported earnings that beat estimates and a gain in existing home sales added to signs the recession is easing. The rally has lifted the S&P 500’s valuation to 16.28 times profit from the past year, the most expensive level since September.

Treasury Auctions

Treasuries fell, pushing the yield on the 10-year note up six basis points to 3.72 percent, as the U.S. began selling a record $115 billion in notes. The U.S. sold $6 billion in 20- year Treasury Inflation Protected Securities at a yield of 2.387 percent, higher than forecast. The Treasury will sell 2-, 5-, and 7-year notes over three days starting tomorrow.

Homebuilders in the S&P 500 climbed 5.7 percent as a group after purchases of new U.S. homes rose 11 percent in June, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize. Centex soared 9.1 percent to $10.29.

Financial stocks advanced the most among the S&P 500’s 10 main industry groups, adding 1.5 percent.

Bank of America jumped 4.6 percent to $13.09 for the biggest advance in the Dow average. Morgan Stanley analysts said the largest U.S. lender is a “top pick” among big banks because of improved capital levels and a cheap valuation. Stifel Financial Corp. analysts also reiterated their “buy” rating.

Wells Fargo, the nation’s fourth-biggest bank by assets, increased 3.2 percent to $24.22, while JPMorgan added 0.6 percent to $38.13.

‘Easy Winner’

Shares in big U.S. companies are the best values and China’s economy could “come unhinged,” hurting emerging- markets stocks, said Jeremy Grantham, chief investment strategist of Grantham Mayo Van Otterloo & Co., in a quarterly letter posted on the Boston-based firm’s Web site.

“The easy winner of the cheapest equity subcategory contest is still high-quality U.S. blue chips,” wrote Grantham, who oversees about $78 billion. “They were really trashed on a relative basis by the second-quarter rally in junk,” he said, without naming any companies he favors.

New York Times rose the most since February, surging 16 percent to $7.71, and led a rally among newspaper publishers. Edward Atorino, a New York-based analyst at Benchmark Co., said the company will earn 9 cents a share next year after posting a 2009 loss.

Las Vegas Sands Corp. added 3.7 percent to $11.28. Macau’s new leader Fernando Chui says China will help the casino hub develop, which may boost revenue for resort operators like Las Vegas Sands.

Aetna, RadioShack

Aetna dropped 2.7 percent to $25.72. The insurer cut its forecast as rising medical costs eroded revenue gains from selling lower-priced policies. Aetna’s second-quarter results missed analysts’ estimates by 10 cents a share, or 13 percent.

RadioShack tumbled 6.6 percent to $15. Sales at the consumer electronics retailer were $965.7 million, below the average estimate of $976.4 million. Same-store sales for company-operated stores and kiosks fell 4 percent.

Verizon Communications Inc. slid 1.6 percent to $31 following a 21 percent drop in profit as business customers cut phone lines along with jobs. The decrease in the company’s enterprise business “suggests that we’re nowhere near out of the woods in this recession,” said Sanford C. Bernstein & Co. analyst Craig Moffett. He expects Verizon’s shares to lag behind the rest of the market.

Earnings Analysis

About 75 percent of S&P 500 companies that released second- quarter results have topped analysts’ estimates so far, with per-share earnings dropping 26 percent on average, according to Bloomberg data.

Wall Street firms lifted forecasts on S&P 500 companies 896 times in June and lowered 886, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007, before more than $1.5 trillion of bank losses tied to subprime loans spurred the first global recession since World War II, the data show.

“We’re setting ourselves up for a bigger profit recovery than most people think,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., which oversees $1.2 trillion in San Francisco, said in a Bloomberg Radio interview. “It’s going to be frustrating for a lot of investors that dig their heels in.”

The S&P 500 has erased more than half its loss since the Sept. 15 collapse of Lehman Brothers Holdings Inc. The benchmark index for U.S. equities has climbed 45 percent from a 12-year low on March 9 after the nation’s largest banks were profitable at the start the year and the government and Federal Reserve pledged $12.8 trillion to revive growth.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: July 27, 2009 16:54 EDT