Feb. 6 (Bloomberg) -- U.S. stocks gained, sending the Dow Jones Industrial Average to its best two-day rally in a month, on speculation the highest unemployment rate since 1992 will force Congress to pass an economic stimulus package.

Bank of America Corp. jumped 27 percent to lead gains in 29 of 30 Dow stocks after saying it doesn’t need more government aid. Citigroup Inc. and JPMorgan Chase & Co. added at least 10.7 percent on speculation a bank rescue to be detailed next week won’t wipe out shareholders. All 10 industry groups in the Standard & Poor’s 500 Index rose as Labor Department data showing the nation lost 598,000 jobs last month bolstered expectations lawmakers will agree on a plan to combat the recession.

The S&P 500 rose 2.7 percent to 868.6. The Dow added 217.52 points, or 2.7 percent, to 8,280.59, capping a 4.1 percent two- day gain. The Nasdaq Composite Index climbed 2.9 percent, erasing its 2009 loss.

“They see this as putting additional pressure on Congress and the president to put forth a stimulus package,” said Peter Jankovskis, the Lisle, Illinois-based co-chief investment officer at Oakbrook Investments LLC, which manages $1.1 billion. “People are looking at this as something that will force a resolution of the current deadlock.”

The S&P 500 gained 5.2 percent over the past five days, snapping a monthlong stretch of weekly declines. The benchmark index for U.S. equities is up 15 percent from an 11-year low reached Nov. 20 amid speculation the stimulus legislation will spur growth. It is still down 3.8 percent on the year.

Stimulus Vote

The Senate put off a vote on the stimulus package after lawmakers failed to agree on how to cut the more than $900 billion measure. The House has already passed an $819 billion version of the plan. Labor Department data released today showed the unemployment rate climbed to 7.6 percent from 7.2 percent in December as payrolls suffered the biggest monthly decline since December 1974.

While the figures were worse than the median estimates in a Bloomberg survey of economists, investors were braced for negative news after job-cut announcements in recent weeks by companies including Starbucks Corp., Caterpillar Inc. and Macy’s Inc., as well as yesterday’s unexpected surge in new claims for unemployment insurance benefits to a 26-year high, said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. Wells Capital oversees about $220 billion.

‘Thinking Ahead’

“People are thinking ahead to what are these numbers going to look like in June,” Paulsen said. “Main Street is in free- fall, which is where Wall Street was in September and October. Wall Street since mid-October has been flat, and that’s what Main Street might look like by spring or early summer.”

The S&P 500 is likely to end the year at around 1,200, up about 42 percent from yesterday’s close, Paulsen said. Strategists at 11 Wall Street investment banks surveyed by Bloomberg have a median forecast of 1,050.

“The bad numbers are likely to continue for a while, but that doesn’t mean stocks won’t look through them as investors see light at the end of the tunnel,” said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc., which manages $16 billion in Fairport, New York. The unemployment rate is “a lagging variable,” tending to peak after stocks have begun to rally and trough after the start of bear markets.

The last peak in the unemployment rate, at 6.3 percent in June 2003, came three months after the S&P 500 began its climb to a record 1,565.15 in October 2007.

Financials Jump

Financial companies in the S&P 500 gained 8.1 percent collectively, the biggest advance among 10 industry groups. Investors are awaiting details of Obama’s strategy to aid the nation’s banks. Treasury Secretary Timothy Geithner on Feb. 9 is scheduled to announce a package that’s likely to emphasize guarantees for impaired assets, according to people familiar with the plan.

Bank of America, the largest U.S. lender by assets, rallied $1.29 to $6.13 to pare its year-to-date slide to 56 percent. CEO Kenneth Lewis told CNBC that nationalization of the bank, which last month received a $138 billion lifeline from the government to support its acquisition of Merrill Lynch & Co., wasn’t even a “remote possibility.”

Citigroup, which received $45 billion from the government last year, added 11 percent to $3.91. JPMorgan, the second- largest U.S. bank by assets, jumped 13 percent to $27.63.

“It’s based on a hope that Geithner’s going to come out with a plan that will not nationalize the banks,” said Peter Kovalski, who manages financial services stocks at Alpine Woods Capital Investors LLC in Purchase, New York. “There was a lot of speculation the worst was going to happen.” Alpine manages $8 billion.

Regionals Rally

Regional banks including Fifth Third Bancorp, Regions Financial Corp., Marshall & Ilsley Corp. and Huntington Bancshares Inc. were among the biggest gains in the S&P 500. Fifth Third, Ohio’s second-largest bank, rallied 60 percent to $2.63. Regions Financial, Alabama’s biggest bank, advanced 48 percent to $4.20. Marshall & Ilsley, Wisconsin’s largest bank, gained 39 percent to $5.31. Huntington, Ohio’s third-largest, climbed 32 percent to $2.36.

Hartford Financial Services Group Inc. bucked the trend, falling 16 percent to $12.68 after reporting a loss and cutting its dividend. The Connecticut-based seller of life insurance and property coverage had a fourth-quarter deficit of $806 million and missed its capital target because of losses on commercial real estate and debt securities. It lowered its quarterly dividend to 5 cents a share from 32 cents. The payout was 53 cents a year ago.

Dividend Concerns

Dividends for companies in the S&P 500 index will fall 13.3 percent this year, the steepest annual decline since 1942, S&P forecast in a report today.

General Electric Co. will evaluate whether to maintain the dividend in this year’s second half, its board said today. For now, the world’s largest maker of jet engines and power equipment will continue to pay the quarterly dividend of 31 cents. GE’s profit fell 43 percent in the fourth quarter, led by a drop in income in its financial segment. Its shares rose 2.3 percent from a 13-year low to $11.10.

JDS Uniphase Corp. lost 6.6 percent to $3.84. The maker of phone equipment said it expects sales of $300 million at most in the fiscal third quarter. That trailed the average estimate of $357.4 million from analysts in a Bloomberg survey.

Apartment Investment & Management Co. dropped 6.2 percent to $7.25. The real-estate investment trust forecast first-quarter funds from operations of 36 cents a share at most, or 40 percent less than the average analyst estimate in a Bloomberg survey.

Profits decreased 37 percent on average for the 307 companies in the S&P 500 that have released fourth-quarter results since Jan. 12, according to data compiled by Bloomberg. The period is projected to be the sixth straight quarter of decreasing profits, the longest streak on record.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: February 6, 2009 16:38 EST