Aug. 15 (Bloomberg) -- U.S. stocks rebounded from a four- month low on speculation that losses from mortgage defaults may be limited as the market for asset-backed securities picks up.

Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. led a gauge of banks and brokerages higher for the first time in five days after Canadian financial services firm Coventree Inc. found buyers for commercial paper. Genworth Financial Inc., the insurer divested by General Electric Co. in 2006, climbed after saying the mortgage-backed bond market would cost the company no more than $195 million over five years.

The Standard & Poor's 500 Index rose 12.58, or 0.9 percent, to 1,439.12 at 1:55 p.m. in New York. The Dow Jones Industrial Average added 86.25, or 0.7 percent, to 13,115.17. The Nasdaq Composite Index increased 16.36, or 0.7 percent, to 2,515.48.

Stocks also got a boost after consumer prices posted their smallest gain in eight months, bolstering expectations the Federal Reserve has leeway to cut interest rates.

``Investors are looking at financials as a place to find companies that have been beaten down too much,'' said Richard Sichel, who helps oversee $1.5 billion as chief investment officer of Philadelphia Trust Co. in Philadelphia. ``We got good inflation data and stocks are now cheaper than they were four weeks ago, so investors are doing some bargain hunting.''

Coventree

Coventree said today it found buyers for C$600 million ($557 million) of debt. Canada's biggest non-bank issuer of asset-backed commercial paper had sought emergency funding because it was unable to refinance debt that matured this week.

Citigroup, the largest U.S. bank, climbed 76 cents to $46.42. Morgan Stanley added $1.09 to $58.67. Goldman gained $2.75 to $172.50.

JPMorgan advanced 87 cents to $44.17 after UBS Investment Bank analysts led by Glenn Schorr said the third-biggest U.S. bank is in ``reasonable shape'' to weather problems in the credit market and will likely pick up market share as rivals leave the mortgage business.

The S&P 500 Diversified Financials Index rose 1.4 percent for its first gain since Aug. 8. Financial firms contributed the most to the gain in the S&P 500.

Genworth climbed $1.41 to $29.27. The $195 million after- tax figure reflects an ``extreme'' loss scenario for its $3.7 billion in bonds backed by subprime and so-called Alt A mortgage collateral, the Richmond, Virginia-based company said in a slide presentation posted on its Web site today.

Thornburg Mortgage

Thornburg Mortgage Inc. gained $4.07, or 53 percent, to $11.68. The lender that specializes in so-called jumbo mortgages too big to be resold to Fannie Mae and Freddie Mac said it met creditors' demands for collateral and promised that loan quality remains ``among the highest in the industry.''

The shares lost nearly half their value yesterday after five brokerages cut their ratings on the Santa Fe, New Mexico- based lender.

Still, the credit crunch continued to weigh on some financial shares.

Countrywide Financial Corp., the biggest U.S. mortgage company, dropped for a fifth day, falling $1.96 to $22.50, after Merrill Lynch & Co. advised clients to sell the shares and said ``funding markets are deteriorating quickly.''

MFA Mortgage Investments Inc. lost 24 cents to $6.16 after Bear Stearns & Co. downgraded the real estate investment trust that invests in home loans to ``peer perform'' from ``outperform.''

'Overweight' U.S.

Analysts at Credit Suisse recommended investors should remain ``overweight'' in U.S. equities because stocks are a safer bet than during the 1998 credit crisis sparked by the collapse of Long-Term Capital Management LP.

``Corporate America is in far better shape than it was in 1998, as is the global economy and equity valuations are much cheaper relative to alternative assets,'' wrote analysts led by London-based Andrew Garthwaite in a research note. ``We believe it is right to stick to our overweight despite the heightened market volatility of recent weeks.''

Deere & Co., the world's largest maker of farm equipment, rose $7.03 to $124.12. The company said third-quarter earnings rose 23 percent on sales of tractors in the U.S. and Brazil. Deere also increased its full-year profit forecast.

'Create Some Values'

``This market to us looks very oversold and I think it's beginning to create some values in stocks,'' said Craig Hester, who oversees $1.5 billion as president of Hester Capital Management in Austin, Texas.

Freeport-McMoRan Copper & Gold Inc., the world's second- largest copper producer, dropped $2.30 to $81.05 after copper prices declined for a second day.

Agilent Technologies Inc. plunged $3.84, or 11 percent, to $32.49 for the biggest drop in the S&P 500. The world's biggest maker of scientific-testing equipment said slowing demand in Asia cut fourth-quarter forecasts. The company predicted profit, excluding some costs, of 50 cents to 54 cents a share. That's less than analysts' estimates of 57 cents a share, according to the Bloomberg survey.

In economic reports, the government said consumer prices climbed 0.1 percent in July, the smallest gain in eight months, signaling the Federal Reserve may view inflation as less of a threat. Core prices, which exclude food and energy, climbed 0.2 percent and were up 2.2 percent from a year earlier. The figures matched forecasts by economists in a Bloomberg survey.

Manufacturing in New York state unexpectedly held near the highest level in more than a year in August. The Federal Reserve report showed. The New York Federal Reserve's general economic index fell to 25.1 from 26.5 in July. Economists forecast the index would decline to 18 this month, according to a survey.

The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22, from 24 in July, the Washington-based association said. A reading below 50 means most respondents view conditions as poor. The gauge has decreased for six consecutive months.

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

Last Updated: August 15, 2007 13:55 EDT