May 26 (Bloomberg) -- U.S. stocks jumped, sending benchmark indexes higher for the first time in five sessions, as the biggest gain in consumer confidence since 2003 spurred optimism the worst of the recession is over. Two-year Treasury notes were little changed after a record-tying $40 billion auction.

JPMorgan Chase & Co., Home Depot Inc. and American Express Co. climbed at least 4 percent after the Conference Board’s index of sentiment surged to the highest since September. Apple Inc. gained 6.8 percent after being upgraded to “overweight” at Morgan Stanley, which said analysts are underestimating demand for iPhones. Exxon Mobil Corp. led an advance in energy shares as crude oil climbed to a six-month high.

“Consumer confidence was materially better,” said David Sowerby, who helps oversee about $100 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. “That allows the market to fight through an expected pause after a rally from March lows.”

The S&P 500 added 2.6 percent to 910.33 at 4:11 p.m. in New York as all 10 industry groups advanced. The Dow Jones Industrial Average increased 196.17 points, or 2.4 percent, to 8,473.49. Eleven stocks gained for each that fell on the New York Stock Exchange, the broadest rally since May 18. The Russell 2000 Index of small companies rose 4.8 percent for the steepest advance since April 9.

The S&P 500 has surged 35 percent from a 12-year low on March 9 on speculation the global recession is easing and as earnings at companies from Ford Motor Co. to Wells Fargo & Co. beat analyst estimates. The index must rise another 37 percent to reach its last closing price before Sept. 15, when Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history, freezing financial markets.

Last Week’s Gain

The S&P 500 gained 0.5 percent last week, with all of the advance coming on the week’s first day, as companies from Lowe’s Cos. to Sears Holdings Corp. beat earnings projections and Deutsche Bank AG advised buying shares of McDonald’s Corp. The index fell on the last four days on concern a recession may deepen and the government’s creditworthiness is deteriorating.

Home Depot, the world’s largest home-improvement retailer, rose 4.1 percent to $23.80 and helped lead an index of consumer discretionary stocks up 3.8 percent for the biggest advance among 10 groups after financials. The Conference Board’s confidence gauge climbed to 54.9 in May, topping economists’ estimates for a reading of 42.6, as recent jumps in the stock market, low mortgage rates and smaller job losses brightened consumers’ outlook.

Apple, Qualcomm Gain

Apple gained 6.8 percent to $130.78 after being upgraded from “equal weight” at Morgan Stanley, which said the iPhone will cause company profit to beat estimates for the next two years.

Qualcomm Inc. rallied 4.8 percent to $43.29. The world’s biggest maker of mobile-phone chips had its 2010 earnings estimates raised at Barclays Plc, which said Qualcomm and Broadcom Corp. are likely to win more market share next year. Broadcom added 2.9 percent to $22.89.

Qwest Communications International Inc. advanced 8 percent to $4.33. The local phone-service provider in 14 U.S. states was raised to “overweight” at JPMorgan, which cited “strong” revenue from business customers and an “attractive” valuation.

“We’re seeing signs of improvement in consumer confidence,” said David Heupel, who helps manage $60 billion at Thrivent Financial in Minneapolis. “Investors are looking for early cycle plays, like technology, betting on an economic recovery.”

Zions Rallies

Zions Bancorporation rose 14 percent to $14.49 for the biggest gain in the S&P 500. The Salt Lake City lender was raised to “overweight” from “equal-weight” at Morgan Stanley, which cited solid growth opportunities, making it an “attractive” investment for long-term shareholders.

The gain in the S&P 500 also came as a record-tying $40 billion auction of Treasury two-year notes drew the most demand from a group of investors that includes foreign central banks since November 2006. The sale helped ease concern international investors will begin to shy away from Treasuries as U.S. borrowing surges to fund bank bailouts, fiscal stimulus spending and a record budget deficit.

The yield on the 10-year note rose five basis points, or 0.05 percentage point, to 3.50 percent at 3:05 p.m. in New York, according to BGCantor Market Data.

$29 Billion Windfall

JPMorgan Chase advanced 6.2 percent to $36.54 for the biggest gain in the Dow average. The New York-based bank stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.

Wells Fargo & Co., Bank of America Corp. and PNC Financial Services Group Inc. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., regulatory filings show. The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks’ balance sheets and the cash flow they’re expected to produce.

Faced with the highest U.S. unemployment in 25 years and a surging foreclosure rate, the lenders are seizing on a four- year-old rule aimed at standardizing how they book acquired loans that have deteriorated in credit quality.

By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage, said Robert Willens, a former Lehman Brothers Holdings Inc. executive who runs a tax and accounting consulting firm in New York.

Wells Fargo added 5.5 percent to $25.65. Bank of America fell 0.8 percent to $10.98. PNC Financial rose 5 percent to $43.25.

Early Loss Erased

The consumer confidence report helped benchmark indexes erase earlier losses, which were led by energy and raw-materials producers, as crude oil reversed a decline and copper prices rose. Crude prices 1.3 percent to a six-month settlement high of $62.45 a barrel in New York.

Exxon Mobil Corp., the world’s largest company by market value, rose 1.4 percent to $69.81. Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly traded copper producer, gained 3.4 percent to $49.99.

Today’s gains in equities came even after the S&P/Case- Shiller home-price index decreased 18.7 percent from March 2008, matching the drop in the year ended in February. The measure declined 19 percent in January, the most since data began in 2001.

Record foreclosures are depressing the value of other properties, contributing to a slump in household wealth that is hurting consumer spending and the economy. Still, falling prices and mortgage rates have made homes more affordable, helping to stem the slide in sales, which will eventually help prices stabilize.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

Last Updated: May 26, 2009 16:41 EDT