March 17 (Bloomberg) -- U.S. stocks advanced, erasing more than half the loss in the Standard & Poor’s 500 Index since President Barack Obama took office, on an unexpected rebound in homebuilding and speculation the Federal Reserve will outline plans to bolster the economy. Oil climbed to a three-month high.

Citigroup Inc. and JPMorgan Chase & Co. rose at least 7.7 percent as the KBW Bank Index extended its gain since March 6 to 46 percent. KB Home, the fourth-largest U.S. homebuilder, rallied 9.3 percent and Home Depot Inc. rose 6.7 percent as housing starts unexpectedly increased 22 percent in February, the most since 1990. Apple Inc. added 4.4 percent to help lead technology shares higher after updating its iPhone software.

The S&P 500 added 3.2 percent to 778.12, led by a 6.6 percent gain in financial companies. The Dow Jones Industrial Average advanced 178.73 points, or 2.5 percent, to 7,395.7. The Nasdaq Composite Index surged 4.1 percent. About eight stocks rose for each that fell on the New York Stock Exchange.

“The market was depressed to an extreme level because of the constant stream of bad news and events,” said Mark Freeman, a money manager at Westwood Management Corp. in Dallas, which oversees $7 billion. “The mere fact that the negative news has stopped allows the market to come back up to a reasonable level.”

The S&P 500 has rebounded 15 percent from a 12-year low on March 9, erasing 58 percent of its slump since Obama first day in office on Jan. 20. The gains were triggered by optimism the worst of the financial crisis was over after Citigroup, Bank of America Corp. and JPMorgan said they were profitable in the first two months of the year.

Nationalization

The S&P 500 is still down 14 percent in 2009 as mounting losses at banks raised concern the government would be forced to nationalize some lenders. The index lost 38 percent in 2008, its worst year since the Great Depression.

Today’s advance came amid speculation that Fed policy makers will consider increasing the pace and size of a $600 billion program to purchase mortgage securities and other assets. That would signal a more aggressive stance from Fed Chairman Ben Bernanke after the economy and job market deteriorated further since the Federal Open Market Committee last met, analysts and investors say. The FOMC is expected to release a statement tomorrow afternoon.

“Bernanke has been cheerleading the economy so there could be some optimism building around his comments tomorrow,” said Eric Bjorgen, a portfolio manager at Leuthold Group, which oversees $3.2 billion.

Most in Dow

JPMorgan rose the most in the Dow, climbing 8.9 percent to $25.14. Citigroup Inc. added 7.7 percent to $2.51, extending its rebound from a March 5 closing low to 146 percent. The stock is still down 63 percent this year.

Centex gained 56 cents, or 8.1 percent, to $7.45 today and an S&P gauge of 13 homebuilders added 6.4 percent. Work began on 583,000 homes at an annual rate in February, topping the 450,000 projected by economists in a Bloomberg survey, the Commerce Department said. The jump was influenced by warmer weather and an 82 percent surge in starts on condominiums, apartments and townhouses.

Home Depot had the Dow’s third-biggest advance, adding 6.7 percent to $21.48. The largest home-improvement retailer was raised to “buy” from “hold” at Jefferies & Co., which cited market share gains.

‘Conviction Buy’

Apple added 4.4 percent to $99.66 and the S&P 500 Information Technology Index jumped 3.9 percent.

Cisco Systems Inc. gained 4.5 percent to $16.14. Goldman Sachs Group Inc. added the world’s largest maker of networking equipment to its “conviction buy” list, citing the introduction of its so-called blade platform.

Crude oil rose to a three-month high following the report on housing in the U.S., the world’s biggest energy-consuming country.

Oil prices have plunged from a record $147.27 in July as the U.S., Europe and Japan face recessions. Gasoline and heating-oil futures prices surged today, with the motor fuel reaching the highest in four months.

“There’s a feeling that maybe the economy has hit the bottom,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $9 billion natural-resource-company bond portfolio. “For the first time in a while we aren’t looking at mostly negative headlines.”

Highest Since December

Crude oil for April delivery rose $1.81, or 3.8 percent, to $49.16 a barrel at 2:44 p.m. on the New York Mercantile Exchange, the highest settlement since Dec. 1. Futures touched $49.82, the highest intraday price since Jan. 6. Prices have increased 10 percent so far this year.

Treasuries fell for a third day as stocks rallied and corporate bond sales increased, diminishing the refuge appeal of U.S. government debt.

Ten-year note yields rose above 3 percent for the first time in almost a week. Longer-term debt gained earlier on speculation Fed policy makers will provide more guidance on possible buys of Treasuries after this week’s policy meeting. Pfizer Inc., the world’s biggest drugmaker, sold $13.5 billion of notes to help finance its purchase of Wyeth in the largest non-financial offering since Roche Holding AG’s sale in February.

“There is a lot of corporate activity and a lot of corporate supply coming into the market this week,” said Dan Orlando, head of U.S. government bond trading in New York at Deutsche Bank Securities Inc., one of 16 primary dealers that trade with the Fed. “That’s weighing on the market.”

Dollar, Yen

The yield on the benchmark 10-year note rose six basis points, or 0.06 percentage point, to 3.01 percent, the highest since March 11, at 4:54 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 fell 15/32, or $4.69 per $1,000 face amount, to 97 25/32.

The 30-year bond’s yield increased six basis points to 3.82 percent. It was the second straight day the yield touched that level, the highest since Nov. 20.

The dollar fell against most of its major counterparts as speculation that the housing slump is bottoming out made the world’s reserve currency less attractive as a haven from global financial turmoil.

“Risky assets found some floor here,” said Richard Benson, who helps oversee $14 billion of currency funds at Millennium Asset Management in London. “We can have a multiday bounce in risky assets. We are short on the yen.” A short is a bet that a currency will fall.

Drought in U.S.

The dollar depreciated 0.4 percent to $1.3018 per euro from $1.2968. It touched $1.3072 yesterday, the weakest level since Feb. 10. The yen declined 0.4 percent to 98.56 per dollar from 98.18.

Wheat prices rose to a one-month high on speculation that rains failed to relieve a drought in parts of the southern U.S. Great Plains, eroding prospects for winter plants emerging from dormancy.

Crops in Kansas, the largest U.S. wheat-growing state, were rated 42 percent good or excellent as of March 12, down from 45 percent a week earlier, after the state got little precipitation, the Department of Agriculture said yesterday.

“It looks like the dry weather is starting to catch some interest,” said Larry Glenn, an analyst at Frontier Ag in Quinter, Kansas. “Concern is increasing in the grain states.”

Wheat futures for May delivery rose 8.25 cents, or 1.5 percent, to $5.525 a bushel on the Chicago Board of Trade. The price earlier reached $5.5375, the highest for a most-active contract since Feb. 11. Yesterday, the grain jumped 5 percent, the most in three months. Wheat has tumbled 51 percent in the past year on increased global production and shrinking demand.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: March 17, 2009 17:36 EDT