April 3 (Bloomberg) -- Falling oil prices and an unexpected rise in pending home sales ignited a stock-market rally that carried the Dow Jones Industrial Average to a five-week high.

Home Depot Inc., Alcoa Inc. and DuPont Co. helped the Dow recover almost all of its losses from the Feb. 27 global rout, and led the Standard & Poor's 500 Index to its second straight gain. Google Inc.'s biggest jump since March 6 gave the Nasdaq Composite Index its fourth consecutive advance.

The National Association of Realtors' index of signed purchase agreements climbed 0.7 percent last month, allaying concern falling real-estate prices will curb spending. A separate report showed retail sales last week rose the most in two months, while the biggest drop in oil since March 9 bolstered expectations the economy will grow without fueling inflation.

``If we see strength in the economy, that is certainly good for stocks,'' said Neil Wolfson, who oversees about $29 billion as president of Wilmington Trust Investment Management in New York. ``We're seeing some stabilization in the housing market,'' while a decline in oil ``allows consumers to spend more.''

The Dow industrials added 128, or 1 percent, to 12,510.30. The gauge is now 1 percent shy of recouping all of its decline from the global equity sell-off that began Feb. 27.

The S&P 500 rose 13.22, or 0.9 percent, to 1437.77. The Nasdaq increased 28.07, or 1.2 percent, to 2450.33.

Crude oil futures fell 2 percent to $64.64 a barrel in New York. Oil has pulled back after reaching a six-month high last week.

Prime Minister Tony Blair said the U.K. will try to negotiate with Iran over the release of 15 captive British naval personnel, easing concern that oil shipments will be disrupted.

Pending Sales

More Americans signed contracts to buy previously owned homes in February, easing concern the housing market will worsen. Economists surveyed by Bloomberg expected a 0.5 percent drop in signed purchase agreements.

``Investors will like this news because the weakness in the economy now is centered on housing,'' said Jeffrey Kleintop, who helps oversee more than $150 billion as chief market strategist at LPL Financial Services in Boston. ``To the extent that this data proves the economy to be stronger than expected, that suggests that the consumer will remain resilient.''

The report sent U.S. Treasuries lower, pushing yields on benchmark 10-year notes close to a one-month high. The yield rose 2 basis points, or 0.02 percentage point, to 4.66 percent. It touched 4.67 percent on March 30, the highest since Feb. 26. The dollar rose to a one-month high against the yen.

Retailers

Retailers gained the most among two dozen industries in the S&P 500, climbing 1.5 percent. Household spending accounts for about two-thirds of the U.S. economy.

Home Depot, the world's biggest home-improvement retailer, added 84 cents to $37.63. Wal-Mart Stores Inc., the largest retailer, climbed 70 cents to $48.10.

Warmer weather spurred a 4.9 percent increase in U.S. retail sales last week as consumers bought clothing and holiday foods for Easter and Passover, according to the International Council of Shopping Centers and UBS AG.

Elsewhere in the Dow industrials, Alcoa, the No. 1 maker of aluminum, jumped 70 cents to $34.62 and DuPont, the third-largest U.S. chemical company, increased 83 cents to $49.89.

Google, the most popular Internet search engine, rose $14.07 to $472.60 after Goldman, Sachs & Co. recommended buying the shares. Google may rally at least another 30 percent by year end as it reports a jump in first-quarter sales and profit, analyst Anthony Noto wrote.

Caterpillar

Caterpillar Inc., which gets about a third of its revenue selling engines, advanced 49 cents to $67.24. The company said sales of the machines may increase, thanks to a $29 billion free- trade pact between the U.S. and South Korea.

Among other industrial shares, United Technologies Corp. climbed 55 cents to $65.27. Credit Suisse Group added the maker of Chubb security and Kidde fire systems to its U.S. focus list. The stock has ``attractive'' odds of rallying, ``along with solid defensive characteristics,'' Credit Suisse's investment policy committee wrote in a report.

The drop in oil sent airlines surging. The Amex Airline Index jumped 3.4 percent, the most since Jan. 3.

Continental Airlines Inc. rose the most, adding $3.03, or 8.4 percent, to $39.08. JPMorgan analyst Jamie Baker said the No. 4 U.S. carrier probably earned 19 cents a share in the first quarter. He had estimated a 10-cent loss.

Best Performer

Marshall & Ilsley Corp. surged $3.97 to $49.83. Its 8.7 percent gain was the biggest in the S&P 500. The Wall Street Journal said the bank will spin off its Metavante Corp. payment- processing unit in a $4 billion transaction. The company confirmed the story after the close of trading.

Almost 11 stocks gained for every three that fell on the New York Stock Exchange. Some 1.56 billion shares changed hands on the Big Board, 4.1 percent less than the three-month average.

Bunge Ltd. dropped $2.29 to $81.40. The world's biggest oilseed processor said first-quarter results would be about break-even or below analysts' estimates because of lower agricultural commodity prices.

The Russell 2000 Index, a benchmark for companies with a median market value of $661 million, rose 1.1 percent to 811.77. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, gained 0.9 percent to 14,581.15. Based on its advance, the value of stocks increased $166.2 billion.

Alcoa Inc. (AA US)
Bunge Ltd. (BG US)
Caterpillar Inc. (CAT US)
Continental Airlines Inc. (CAL US)
DuPont Co. (DD US)
Google Inc. (GOOG US)
Home Depot Inc. (HD US)
Marshall & Ilsley Corp. (MI US)
United Technologies Corp. (UTX US)
Wal-Mart Stores Inc. (WMT US)

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.

Last Updated: April 3, 2007 16:50 EDT