Aug. 28 (Bloomberg) -- U.S. stocks climbed the most in three weeks, led by manufacturers and financial companies, after growth in exports helped the economy expand faster than estimated in the second quarter.

American International Group Inc., Caterpillar Inc. and AT&T Inc. rose more than 3 percent each and helped lead gains in nine of ten industry groups in the Standard & Poor's 500 Index after the Commerce Department said gross domestic product grew at a 3.3 percent annual rate. Tiffany & Co., the world's second-largest luxury jewelry retailer, jumped the most in three years on profit that topped analysts' estimates. Energy shares erased an early advance, and consumer companies rallied, as oil prices slipped more than $2 a barrel following three days of gains.

``The bears ran away for the weekend,'' Frederic Dickson, who helps oversee $23 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, told Bloomberg Radio. The GDP report ``was a lift. We haven't had much positive news and that provided it.''

The S&P 500 gained 19.02 points, or 1.5 percent, to 1,300.68, capping its biggest three-day advance in a month. The Dow Jones Industrial Average increased 212.67, or 1.9 percent, to 11,715.18. The Nasdaq Composite Index added 29.18 to 2,411.64. More than five stocks rose for each that fell on the New York Stock Exchange.

August Advance

The S&P 500 extended its August gain to 2.6 percent and wiped out losses from earlier in the week as the GDP report showed businesses are weathering rising inflation and more than $500 billion in subprime-related bank losses. The government's initial estimate of economic growth was 1.9 percent last month and economists in a Bloomberg survey on average projected 2.7 percent. The data follows an unexpected advance in durable goods orders that helped boost stocks yesterday.

The Dow average's 3 percent gain so far in August makes it the third-best-performing stock measure in the world this month, in dollar terms, and the S&P 500's advance is No. 4., according to data compiled by Bloomberg.

AIG, the largest U.S. insurer, rose the most in three weeks, adding 7.6 percent to $21.51. Caterpillar, the biggest maker of bulldozers, increased 3.1 percent to $71.68. AT&T, the top U.S. phone company, added 3.3 percent to $32.23. All 15 homebuilders in S&P indexes advanced, leading a group of the stocks to its second day of gains exceeding 5 percent.

``You're getting stronger growth, and that is conceivably good for equities,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Capital Management, which oversees about $70 billion. GDP growth above 3 percent ``suggests that the economy is not as bad as a lot of the recent commentary has suggested,'' he said.

Fannie Mae Rallies

Fannie Mae, the biggest U.S. mortgage-finance company, gained 23 percent to $7.95, paring its 2008 tumble to 80 percent. Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares. Smaller rival Freddie Mac jumped 11 percent and is down 85 percent since the start of the year.

The S&P 500 Financials Index rallied 4.5 percent, capping its first three-day advance since the middle of July, as 88 of 89 companies in the group climbed. Bank of America Corp., the second-largest bank, increased 6 percent to $31.43, contributing the most to the rise in the benchmark measure of banks, brokerages and insurance companies. Merrill Lynch & Co. increased 8.9 percent to $27.52 for the biggest increase in three weeks.

Bond Insurance Deal

MBIA jumped 35 percent to $16.15 for the biggest gain since January. The largest bond insurer agreed to reinsure municipal bonds for Financial Guaranty Insurance Co. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value.

Ambac Financial Group Inc., the bond insurer that lost about three-fourths of its market value this year, increased 42 percent to $7.42.

Lehman Brothers Holdings Inc. added 7.4 percent, the most since Aug. 5, to $15.87. The investment bank that's trying to shed mortgage assets and raise capital is preparing to eliminate as many as 1,000 jobs in what would be the firm's fourth round of cuts this year, people familiar with the matter said. The cuts may be announced when Lehman, the fourth-largest U.S. securities firm, releases third-quarter financial results next month, according to the people, who declined to be identified because the plan hasn't been completed.

Retail Rally

Tiffany had the steepest gain since 2005, rising 11 percent to $43.85. The retailer posted profit that exceeded analysts' estimates on better-than-expected sales and predicted higher annual earnings than previously estimated.

Zale Corp., the biggest U.S. jewelry chain with 2,130 stores, rose 21 percent to $27.92 for the biggest gain in at least 15 years after projecting full-year profit that exceeds analysts' estimates.

Sears Holdings Corp. advanced 4.2 percent to $90.62. The biggest U.S. department-store company said earnings in the second half of the year may rise. Inventory reductions will help profit excluding some costs climb even as sales are ``pressured'' and the U.S. economic slump persists, Sears said.

Occidental Petroleum Corp. and EOG Resources Inc. led a gauge of energy shares to the only retreat among 10 industries in the S&P 500 as crude fell more than $2 a barrel. The reversal in oil came after the International Energy Agency said it would tap strategic stockpiles, if needed, as Tropical Storm Gustav threatens production in the Gulf of Mexico. Occidental Petroleum dropped the most in the S&P 500, slumping 4.3 percent to $80.57. EOG lost 3.5 percent to $105.34.

Coca-Cola Slumps

Coca-Cola Co. lost 1.3 percent to $53.12 for the only decline in the 30-stock Dow average. The world's biggest sodamaker was cut to ``neutral'' from ``outperform'' at Credit Suisse Group AG, which said rival PepsiCo Inc. is a better bet because it's further along with a restructuring.

Brown-Forman Corp. fell the most in two months, with the company's Class B shares losing 3.7 percent to $74.17. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline and trailed analysts' estimates after writing down the value of dead agave plants used for making tequila.

The S&P 500 is poised to complete only its third monthly advance since reaching a record in October. It is still down 11 percent this year.

The S&P 500's August gain has been led by so-called consumer discretionary companies, which include retailers and hotel and restaurant chains. The S&P 500 Consumer Discretionary Index rallied 8.1 percent this month for the best gain among 10 industries. The gauge climbed another 2.3 percent today as all but one of its 82 companies advanced.

An index of technology shares in the S&P 500 has had the second-best return in August with a 4.6 percent rally through, led by a 48 percent jump in Advanced Micro Devices Inc.

About 956.3 million shares changed hands on the NYSE as volume picked up after setting new lows for the year for five straight days. Trading was still 35 percent below the year's average on the Big Board.

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

Last Updated: August 28, 2008 16:54 EDT