Oct. 2 (Bloomberg) -- Most U.S. stocks rose for a second day after the pace of takeovers picked up and investors speculated falling August home sales may mark the bottom of the housing slump.

Financial shares climbed to the highest since July after Commerce Bancorp Inc. agreed to be bought by Canada's Toronto- Dominion Bank and Citigroup Inc. said it will purchase the rest of Japanese brokerage Nikko Cordial Corp. D.R. Horton Inc., Pulte Homes Inc. and KB Home led homebuilders to the biggest two-day gain since August as confidence grew that contagion from subprime-mortgage losses is waning.

``There's a lot of optimism that the worst is over for the subprime debacle,'' said John Davidson, who helps oversee more than $11 billion as president of PartnerRe Asset Management in Greenwich, Connecticut.

Seven stocks advanced for every five that declined on the New York Stock Exchange. The Dow Jones Industrial Average fell and the Standard & Poor's 500 Index was little changed after a drop in oil prices pushed energy producers lower. The Dow lost 40.24, or 0.3 percent, to 14,047.31. The S&P 500 slipped 0.41 to 1,546.63. The Nasdaq Composite Index increased 6.12, or 0.2 percent, to 2,747.11.

The $8.5 billion deal for Commerce Bancorp was the first bid for an S&P 500 company since July, encouraging investors lower interest rates may help spur more acquisitions.

Citigroup, Commerce Bancorp

Citigroup rose 14 cents to $47.86 after saying it will make Nikko Cordial a wholly owned subsidiary by using its shares to pay for a 32 percent stake to add to the 68 percent it already owns. Citigroup rallied 2.3 percent yesterday after Chief Executive Charles Prince said the largest U.S. bank expects ``to return to a normal earnings environment in the fourth quarter'' following a 60 percent decline in third-quarter profit because of credit-market losses.

Saudi Prince Alwaleed bin Talal, a billionaire investor whose holding company owns a 3.6 percent stake in Citigroup, said in an e-mailed statement that the third-quarter profit drop was a ``mere hiccup'' and he backs the bank's management.

Toronto-Dominion Bank offered to pay $42.37 a share in cash and stock for Commerce Bancorp, based on the Canadian bank's closing stock price yesterday. The acquisition would double the size of Toronto-Dominion's U.S. banking business. Commerce Bancorp, the biggest bank based in New Jersey, slipped 14 cents to $39.47 after a 5 percent drop in the Canadian bank's shares lowered the value of the offer.

The S&P 500 Financials Index, which has lost 4.1 percent this year, climbed 0.8 percent today.

Mergers and Acquisitions

Takeovers of publicly traded U.S. companies plummeted 82 percent from an average $107.1 billion a month in the first seven months of 2007 to an average $18.8 billion a month in August and September, data compiled by Bloomberg show.

Homebuilding companies across S&P indexes rose 5.5 percent following a 4.3 percent gain yesterday after Citi Investment Research said in a note that the industry's decline has made the stocks attractive. Lennar Corp., the biggest U.S. homebuilder, increased $1.45 to $24.72. D.R. Horton, the second-largest, advanced 88 cents to $14.34. Pulte added 71 cents to $15.50, while KB Home rallied $1.28 to $27.25.

``The homebuilders are up today because there is a short term bet that things are not going to get worse,'' said Lawrence Creatura, who helps manage $2.6 billion at Clover Capital Management Inc. in Rochester, New York. ``Yesterday's upgrades are helping the sector but there haven't been fundamental changes today.''

Pepsi Bottling, GM

Pepsi Bottling Group Inc. added 78 cents to $37.97. Third- quarter net income for the second-largest soft-drink distributor jumped 26 percent to $260 million, or $1.12 a share. Excluding a tax gain and certain costs, profit beat the average estimate of analysts by 9 cents. Sales for the third quarter increased 7.8 percent to $3.73 billion.

General Motors Corp. jumped $1, or 2.8 percent, to $37.05 for the top gain in the Dow. September sales were better than expected as a two-day strike by the United Auto Workers union did not hinder sales, the largest U.S. automaker said.

Ford Motor Co. added 34 cents to $8.57. The stock was recommended by CNBC ``Mad Money'' host Jim Cramer, who said the second-largest U.S. automaker will benefit from GM's tentative deal with its largest union. The shares gained even after the company said light vehicle sales dropped more than 20 percent in September, marking the 11th consecutive monthly decline.

Exxon Mobil Corp. and Chevron Corp. were the biggest drags on the S&P 500 as oil prices fell for a third day, losing 19 cents to $80.05 a barrel in New York. Exxon, the biggest U.S. oil company, declined $1.71 to $92.24. Chevron, the second-largest, slipped $1.88 to $92.56.

Palm, Hershey

Palm Inc. slumped 55 cents to $15.45. The maker of the Treo e-mail phone posted its first loss in more than three years, and forecast fiscal second-quarter profit excluding some items that missed analysts' estimates.

Hershey Co., the largest U.S. candy maker, fell $1.63 to $45.78. Chief Executive Officer Richard Lenny will leave at the end of 2007 after higher dairy prices and competition from Mars Inc. sent the shares toward a third straight annual decline.

Biogen Idec Inc., the world's biggest maker of multiple sclerosis drugs, lost $2.28, or 3.4 percent, to $65.66, the most in more than seven months. Analyst David Amsellem at Friedman Billings Ramsey & Co. said the company's expectations for the Tysabri MS drug are ``tough to achieve.'' Credit Suisse cut the shares to ``underperform'' from ``neutral.''

Home Sales

In economic reports, the number of Americans signing contracts to buy previously owned homes fell more than forecast in August. The National Association of Realtors' index of signed purchase agreements dropped 6.5 percent to the lowest level since record-keeping began in 2001, the group said. The gauge plunged 11 percent in July.

The Russell 2000 Index, a benchmark for companies with a median market value of $647 million, added 0.9 percent to 831.97. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, advanced 0.1 percent to 15,595.11. Based on its gain, the value of stocks increased by $24.2 billion.

Some 1.3 billion shares changed hands on the New York Stock Exchange, 23 percent less than the three-month daily average.

In other markets, the yield on the benchmark 10-year Treasury note fell 2 basis points, or 0.02 percentage point, to 4.52 percent. The dollar rebounded from a record low against the euro.

Biogen Idec Inc. (BIIB US)
Citigroup Inc. (C US)
Commerce Bancorp Inc. (CBH US)
Chevron Corp. (CVX US)
D.R. Horton Inc. (DHI US)
Exxon Mobil Corp. (XOM US)
KB Home (KBH US)
Ford Motor Co. (F US)
General Motors Corp. (GM US)
Hershey Co. (HSY US)
Lennar Corp. (LEN US)
Palm Inc. (PALM US)
Pepsi Bottling Group Inc. (PBG US)
Pulte Homes Inc. (PHM US)

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

Last Updated: October 2, 2007 18:45 EDT