Aug. 29 (Bloomberg) -- Technology shares rallied, helping the U.S. stock market recover from the steepest decline in three weeks and sending the Nasdaq Composite Index to its biggest advance in a year.

Intel Corp., Oracle Corp. and Dell Inc. led gains after Seagate Technology, the world's largest maker of hard-disk drives, boosted its profit and revenue forecast. Apple Inc. rose on speculation it will start selling new versions of the iPod. Exxon Mobil Corp. led 31 of 32 energy companies in the S&P 500 higher after crude oil prices reached a three-week peak.

The Standard & Poor's 500 Index climbed 31.4, or 2.2 percent, to 1,463.76. The Dow Jones Industrial Average increased 247.44, or 1.9 percent, to 13,289.29. The Nasdaq added 62.52, or 2.5 percent, to 2,563.16, its largest rally since June 2006.

The Dow average posted back-to-back moves of more than 200 points for the second time this month. The last time the average moved that much on consecutive days was in March 2003. Financial shares gained as traders increased wagers that the Federal Reserve will reduce its benchmark lending rate by 0.5 percentage point at its next policy meeting in September.

``There are a lot of good opportunities in the market right now,'' said Joseph Keating, who helps manage about $3 billion as chief investment officer at First American Asset Management in Birmingham, Alabama. ``Investors need to be stepping up to the plate.''

All 10 industry groups in the S&P 500 advanced, with 482 of the index's members posting gains.

Fed Funds

Fed funds futures contracts today showed traders see a 44 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, up from 36 percent odds yesterday.

The Federal Reserve is ``closely monitoring'' markets and is ready to ``act as needed,'' Chairman Ben S. Bernanke wrote in an Aug. 27 letter sent to Senator Charles Schumer, a New York Democrat.

The Fed may eventually reduce its benchmark interest rate to 4 percent as slowing U.S. economic growth restrains inflation, said Edward Hyman, chairman of International Strategy and Investment Group.

``They will start to ease in a measured way, 25 basis points every meeting,'' said Hyman, the top-rated economist on Wall Street by Institutional Investor for the past 27 years. ``The market should go up with a Fed easing.''

Seagate Rises

Seagate shares rose 93 cents to $25.39. First-quarter revenue will be as much as $3.25 billion, up from a previous forecast of as much as $3 billion, the company said. Profit in the three months ending Sept. 28 will be as much as 61 cents a share, compared with a previous projection of as much as 39 cents.

Makers of computers and software also advanced. Intel, the world's biggest semiconductor maker, climbed $1.13 to $25.09. Oracle, the world's third-biggest software maker, added 77 cents to $20.13. Dell, the second-biggest maker of personal computers, increased 97 cents to $27.86.

Semtech Corp. added $1.67 to $17.52. The maker of chips used in mobile phones and personal computers said second-quarter profit excluding some costs was 18 cents a share. That topped the 15-cent average analyst estimate.

Apple gained $7.26 to $134.08 on speculation the company will introduce new models of its iPod music player in time for the Christmas holidays. Apple sent out invitations to a Sept. 5 event showing a silhouetted dancer carrying an iPod, an image from its advertisements.

Revamped iPods

Goldman, Sachs & Co. analysts wrote in a note to clients that Apple's announcement ``is likely to include a full line-up of revamped iPods'' and ``provides another reason to own Apple shares.''

Earnings at technology companies in the S&P 500 may climb 10.5 percent this year and 22.7 percent next year, according to the average of analysts' estimates compiled by Bloomberg on Aug. 24. The 2008 profit growth estimate is the highest among 10 industry groups.

``We're excited about technology and the fact that the valuations have come down to pretty good levels,'' said Benjamin Pace, who helps manage about $25 billion as chief investment officer at Deutsche Bank Private Wealth Management in New York. ``Technology earnings are going to grow.''

Exxon, the world's biggest energy company, gained $2.23 to $85.23. ConocoPhillips, the third-largest U.S. oil producer, added $2.96 to $81.77.

Energy Shares

Energy shares in the S&P 500 climbed 3.2 percent as a group for the top advance among 10 industries.

Crude oil for October delivery rose $1.78 to $73.51 a barrel in New York after an Energy Department report showed U.S. oil and gasoline inventories declined more than expected. Gasoline and heating oil prices also rose.

Profits at S&P 500 energy companies may climb 2.5 percent this year and 2.9 percent in 2008, based on analysts' estimates. Average earnings for all members of the S&P 500 are expected to rise 9 percent in 2007 and 11.3 percent in 2008.

Financial shares in the S&P 500 rallied 1.8 percent.

Fannie Mae and Freddie Mac contributed to the gains after Bernanke said in his letter to Schumer that relaxing portfolio limits on the two largest home-loan buyers isn't necessary for the companies to help stem a surge in foreclosures.

The regulator for Fannie Mae and Freddie Mac on Aug. 10 rejected requests by the government-chartered firms to allow them to buy more home loans and help ease a credit crunch that has frozen the U.S. mortgage market.

Fannie Mae gained $2.19 to $65.76. Freddie Mac added $2.05 to $63.25.

Insurance Companies

Insurance companies also rose after Fitch Ratings and S&P said they face little or no risk of investment losses or cash shortages from the subprime mortgage turmoil. Travelers Cos., the second-largest U.S. commercial insurer, added $2.06 to $52.04. Prudential Financial Inc., the No. 2 life insurer, gained $3.63 to $89.84.

Big Lots Inc. climbed $2.61, or 9.9 percent, to $28.91 for the top gain in the S&P 500. The largest U.S. seller of discontinued goods reported second-quarter profit that topped analysts' estimates and increased its earnings forecast.

Williams-Sonoma Inc. jumped $3.13 to $32.70. The biggest gourmet-cookware retailer in the U.S. raised its annual earnings forecast after quarterly profit excluding some items exceeded estimates.

More than 13 stocks gained for every one that fell on the New York Stock Exchange. Some 1.3 billion shares changed hands on the Big Board, 23 percent less than the three-month daily average.

Dillard's Declines

Dillard's Inc. declined 14 cents to $24.20. The U.S. department-store chain that operates mostly in southern states posted a wider second-quarter loss than analysts anticipated as lower apparel sales prompted the retailer to offer bigger markdowns.

PDL BioPharma Inc. dropped $4.80 to $18.80. The developer of technology for cancer medicines said it will divest all of its marketed products, stop developing its lead drug candidate and slash a ``substantial'' number of jobs in a strategic overhaul.

In economic data today, mortgage applications in the U.S. declined to a four-week low as the rate on one-year adjustable loans jumped by the most since Mortgage Bankers Association began keeping records in 1996. The group's index of applications to buy a home or refinance a loan fell 4 percent last week to 615.2 from 641.1. The group's purchase and refinancing gauges each decreased for a second week.

In other markets, the yen fell the most in more than three years against the euro and declined versus the dollar on speculation a rebound in European and U.S. stocks will encourage investors to sell the currency to buy riskier assets abroad.

The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 2.5 percent to 787.32. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, added 2.1 percent to 14,734.31. Based on its advance, the value of stocks increased by $385.9 billion.

Apple Inc. (AAPL US)
Big Lots Inc. (BIG US)
ConocoPhillips (COP US)
Dell Inc. (DELL US)
Dillard's Inc. (DDS US)
Exxon Mobil Corp. (XOM US)
Fannie Mae (FNM US)
Freddie Mac (FRE US)
Intel Corp. (INTC US)
Oracle Corp. (ORCL US)
PDL BioPharma Inc. (PDLI US)
Prudential Financial Inc. (PRU US)
Seagate Technology (STX US)
Semtech Corp. (SMTC US)
Travelers Cos. (TRV US)
Williams-Sonoma Inc. (WSM US)

To contact the reporters on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.

Last Updated: August 29, 2007 17:58 EDT