July 1 (Bloomberg) -- U.S. stocks climbed, extending gains from the best quarter for the Standard & Poor’s 500 Index since 1998, as improving measures of manufacturing and home sales added to evidence that the worst of the recession is over. Crude oil fell, while gold gained the most in a week.

Kraft Foods Inc. led the Dow Jones Industrial Average higher as the second-largest foodmaker said it may expand factories in Russia. Yum! Brands Inc., owner of Taco Bell, rose 5 percent as Goldman Sachs Group Inc. recommended the shares. Eight of 10 industries in the S&P 500 advanced as the Institute for Supply Management’s factory index shrank at the slowest pace in 10 months and home resales increased for a fourth month.

“People see these as leading indicators,” Michael Binger, a Minneapolis-based fund manager at Thrivent Asset Management, said of the ISM and housing data. Thrivent oversees about $60 billion. “If they feel both these areas have bottomed and have a chance of resuming growth, that’s good for the market.”

The S&P 500, which capped a 15 percent quarterly surge yesterday, added 0.4 percent to 923.33 at 4:05 p.m. in New York. The Dow rallied 57.06 points, or 0.7 percent, to 8,504.06. Three stocks rose for each that fell on the New York Stock Exchange. Europe’s benchmark index gained, while Asia’s declined.

Earnings Season

The second-quarter earnings season kicks off next week with Alcoa Inc., the largest U.S. aluminum producer, reporting results on July 8. Analysts estimate profits in the S&P 500 declined 34 percent in the second quarter and will slump 22 percent on average in the third, before rebounding 62 percent in the final three-month period, according to Bloomberg data.

Kraft rose the most since December, jumping 5 percent to $26.61. The maker of macaroni and cheese dinners and Oreo cookies has been expanding in Russia to tap higher demand as 10 consecutive years of economic growth raise consumer spending. David Steer, the company’s head of Russia, said Kraft has seen “continuous double-digit growth a year.”

Yum! Brands gained 5 percent, the most in more than two months, to $35.02. Goldman Sachs raised its recommendation on the shares to “buy” from “neutral” on expectations improving business in China and the U.S. will help growth accelerate in the second half of 2009.

General Mills Inc. climbed 3.9 percent to $58.18. The maker of Cheerios and Hamburger Helper increased its 2010 profit forecast because of slower ingredient cost growth and said fourth-quarter profit rose 94 percent.

‘Still Heading Up’

“We’re still heading up,” said Christopher Hyzy, chief investment officer at Bank of America’s private wealth management unit, which oversees $200 billion. “We saw some very good numbers come out recently. Housing is back to 2000 levels as it relates to income and affordability.”

Freeport-McMoRan Copper & Gold Inc. added 0.9 percent to $50.57 as copper climbed after manufacturing in China, the biggest user of the metal, increased for a fourth month. China’s Purchasing Managers’ Index climbed to a seasonally adjusted 53.2 in June from 53.1 in May as a 4 trillion-yuan ($585 billion) stimulus plan and record bank lending revive the world’s third- largest economy.

Gold gained the most in a week, rising 1.2 percent to $938.80 an ounce to halt a two-day slide, as a weaker dollar boosted the metal’s appeal as an alternative investment. Crude oil fell 0.8 percent to $69.32 a barrel following a U.S. government report that showed fuel supplies in the world’s biggest energy-consuming country rose more than forecast.

Oshkosh Corp. surged 27 percent, the most since November, to $18.43 after winning a $1.06 billion contract to build all- terrain trucks that would protect troops in Afghanistan from roadside bombs.

Mutual Funds Rebound

The second-quarter rally sent stock mutual funds up an average of 19 percent, the biggest quarterly gain in almost a decade, according to data compiled by research firm Morningstar Inc. The increase was the first by equity funds in a year.

Bill Miller’s Legg Mason Opportunity Trust was the biggest- gaining U.S. stock mutual fund in the second quarter, surging 48 percent as markets responded to signs the recession could be coming to an end.

Stocks gained today even after data from ADP Employer Services showed companies in the U.S. cut 473,000 jobs in June, 79,000 more than economists forecast, adding to signs the labor market will be slow to improve even as other parts of the economy indicate the recession is abating. The Labor Department’s payrolls report tomorrow is forecast to show a drop of 365,000 jobs, according to the average estimate in a Bloomberg survey of economists.

The U.S. is heading into a “new normal” of higher savings and lower consumption, Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said in his July note to clients. He recommended investors favor bonds and dividend-paying equities.

MetroPCS Communications Inc. slid for a third day, losing 5.1 percent to $12.63. The mobile-phone company and Leap Wireless International Inc. face increasing competition in the unlimited pre-paid market, Pali Research wrote in a note, initiating coverage of the two companies with a “sell” rating.

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

Last Updated: July 1, 2009 16:34 EDT