July 31 (Bloomberg) -- U.S. stocks rose, extending the Dow Jones Industrial Average’s best monthly gain since 2002, as better-than-estimated gross domestic product spurred speculation the economy is recovering from the recession.

General Electric Co., Bank of America Corp. and Alcoa Inc. helped lead the Dow higher as the Commerce Department said the economy shrank at a 1 percent annual rate last quarter, better than the 1.5 percent slump forecast by economists. Ford Motor Co. jumped 8.3 percent on speculation the government’s “cash for clunkers” program is boosting demand for cars. The dollar declined to the lowest level this year against six major trading partners, while metals, oil and Treasuries advanced.

The Standard & Poor’s 500 Index gained 0.1 percent to 987.48 at 4:06 p.m. in New York, the highest since Nov. 4. It rose 7.4 percent in July for a fifth straight monthly advance, the longest streak since 2007. The Dow rose 17.15 points, or 0.2 percent, to 9,171.61 and added 8.6 percent in July.

“Anytime it beats consensus, you’re going to get a positive reaction in the market,” Thomas Nyheim, a Greenville, Delaware- based fund manager for Christiana Bank & Trust Co., which oversees $4.5 billion, said of the GDP report. “The market’s valuation is still good and earnings reports are beating expectations. The consensus that’s taken place is that the recession is easing.”

‘Gradual’ Recovery

Equities also gained after the International Monetary Fund predicted a “gradual” recovery in the U.S. economy and the House approved a measure to add $2 billion to the “cash for clunkers” car-purchase incentive program. The advance extended the S&P 500’s rally since July 10 to more than 12 percent, spurred by the most companies beating analysts’ second-quarter profit estimates since records began in 1993.

More than three out of four companies in the S&P 500 that released results since June 17 exceeded earnings projections for the second quarter, data compiled by Bloomberg show. They’ve beaten forecasts by an average 10 percent, even as per-share earnings tumbled 32 percent and sales slid 16 percent.

Washington Post Co. surged 7.7 percent, the most since March, to $451.50. The newspaper owner posted a second-quarter profit, after a loss a year earlier, as increased demand for higher-education programs boosted revenue at its Kaplan education division.

Walt Disney Co. had the biggest drop in the Dow, losing 4.2 percent to $25.12. The world’s biggest media company reported third-quarter revenue of $8.6 billion, missing the average analyst estimate, as the recession cut advertising and theme- park sales. JPMorgan Chase & Co. downgraded the shares to “underweight” from “neutral.”

Dollar Slumps, Bonds Rise

The Dollar Index, which the ICE futures exchange uses to track the currency against counterparts including the yen, pound and Swedish krona, touched 78.22, the lowest since Dec. 18. Longer-maturity debt led gains in Treasuries, sending yields down. The yield on the 10-year note fell 13 basis points, or 0.13 percentage point, to 3.48 percent.

The Commerce Department’s better-than-estimated report on GDP led JPMorgan’s Bruce Kasman to boost its forecast for growth this quarter to a 3 percent annual rate, the best performance in two years, from a prior 2.5 percent projection. The GDP data also overshadowed other reports showing personal consumption slid more than economists forecast in the second quarter and the first year of the recession was deeper than earlier estimated.

Not ‘Roaring Back’

A measure of U.S. business activity from the Institute for Supply Management-Chicago Inc showed a slower pace of contraction in July, a sign the economic outlook is improving entering the second half of the year.

“The worst is probably behind us, but I don’t think the economy is going to be roaring back anytime soon,” said Jason Cooper, who manages $2.5 billion at 1st Source Investment Advisors in South Bend, Indiana.

GE, which makes everything from medical-imaging machines to jet engines, rose 2.2 percent to $13.40. Bank of America increased for a fifth straight day, adding 5.9 percent to $14.79. Alcoa climbed 2.6 percent to $11.76.

Ford, the only major U.S. automaker to forgo federal aid, rallied 8.3 percent to $8 for the biggest gain in the S&P 500. Goodyear Tire & Rubber Co. surged 7.3 percent to $17.02. U.S. auto sales may reach a 2009 high in July after the government’s “cash-for-clunkers” program lured shoppers back to showrooms, based on Bloomberg survey of analysts.

Steelmakers Gain

U.S. Steel Corp. and Nucor Corp., the two largest U.S.- based steelmakers, gained more than 1.2 percent. Steel prices jumped 13 percent in July for the first gain in a year after distributors began restocking their inventories, according to a report from Purchasing magazine.

Las Vegas Sands Corp. dropped 16 percent to $9.35. The casino company controlled by billionaire Sheldon Adelson reported a bigger loss than analysts estimated after writing down the value of a Las Vegas mall it developed.

Stock recommendations from Wall Street brokerages produced bigger profits than picks by analysts working for money managers, based on a study of equity research from 1997 to 2004. Shares chosen by so-called sell-side analysts performed more than three times better than the companies selected for mutual funds, according to the survey by professors from Harvard Business School and the University of North Carolina.

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

Last Updated: July 31, 2009 16:38 EDT