Nov. 2 (Bloomberg) -- U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from its biggest weekly drop since May, as Ford Motor Co.’s profit and gauges of manufacturing, home sales and construction spending topped projections.

Ford rallied 8.3 percent, the most since July, following its first operating profit since early 2008. American Express Co., United Technologies Corp. and General Electric Co. climbed at least 1.5 percent. Benchmark indexes pared gains after Jon Greenlee, associate director of the Federal Reserve division that regulates banks, said banks still face threats from defaults on commercial-real estate.

The S&P 500 added 0.7 percent to 1,042.88 at 4:10 p.m. in New York. The Dow Jones Industrial Average, which had moved more than 100 points on six of the previous seven days, gained 76.71 points, or 0.8 percent, to 9,789.44. About four stocks rose for every three that fell on the New York Stock Exchange.

“What we’re seeing is a general improvement in the economy as reflected in that ISM number,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, which manages about $98 billion in client assets. “Beyond that we saw some fairly decent numbers out of new home construction as well, so that’s also a positive. So long as the data continues to come in positive like we saw today, the market will take comfort in that.”

ISM, Construction, Homes

Stocks rallied in early trading after the Institute for Supply Management’s factory index climbed to 55.7 in October as U.S. manufacturing expanded at the fastest pace in more than three years. Construction spending unexpectedly increased 0.8 percent in September, the Commerce Department said, while the National Association of Realtors said signed purchase agreements advanced 6.1 percent.

The S&P 500 trimmed a gain of as much as 1.5 percent and the Dow pared a 146-point rally after Greenlee said the banking system is still “far from robust,” wiping out most of a 2.5 percent rally in the S&P 500 Financials Index and leaving the group of banks, insurers and investment firms up 0.8 percent on the day.

The S&P 500 slid 4 percent last week as lower-than- estimated new-home sales and a drop in consumer spending added to speculation that the seven-month rally outpaced prospects for an economic recovery. The losses came even as more companies beat analysts’ projections for third-quarter earnings and government data showed the U.S. economy returned to growth following four straight quarters of contraction.

Of 334 companies in the S&P 500 that reported quarterly earnings since Oct. 7, 84 percent topped estimates, according to data compiled by Bloomberg. Sales have exceeded predictions by 58 percent.

‘PEG’ Ratio

Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades. Investors are paying the lowest so-called price-to-earnings growth ratios since 1995, according to Bloomberg data.

Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961.

Ford, the only major U.S. automaker to avoid bankruptcy, rallied 8.3 percent to $7.58. The company reported third-quarter profit, excluding extraordinary items, of 26 cents a share, beating the 20-cent loss estimated by analysts in a Bloomberg survey.

Varian Medical Systems Inc. added 5.4 percent to $43.18. The maker of radiation equipment used to treat cancer was raised to “buy” from “hold” at Soleil Securities.

BB&T, SunTrust

BB&T Corp. rose 4.8 percent to $25.06 after it was raised to “hold” from “sell” at Sandler O’Neill. SunTrust Banks Inc. gained 4 percent to $19.88 after the analysts raised it to “buy” from “hold.”

CIT Group Inc. plunged 65 percent to 25 cents. The company filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout.

CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT.

Eight of 10 industry groups in the S&P 500 advanced today, led by gains of more than 1 percent in consumer-staples companies and raw-materials producers.

‘Shaking It Off’

“This is the post-Halloween pick-up,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $234 billion. “Ford’s earnings today were very, very good. I think that a lot of folks were concerned about the CIT bankruptcy, but the market is kind of shaking it off pretty resoundingly.”

Motorola Inc. added 5.4 percent to $9.03. The biggest U.S. mobile-phone maker was raised to “buy” from “hold” by analysts at Citigroup Inc., who said the company will introduce a “compelling” offer of handsets at a “time when many investors have given up.”

The analysts reduced their recommendations on Palm Inc. and Research In Motion Ltd. to “sell,” from “hold” and “buy” respectively. Research in Motion Ltd. lost 5.1 percent to $55.74. Palm slid 6 percent to $10.91. The recommendation changes came in a report to investors dated Nov. 1.

American Express gained 2.4 percent to $35.68. The biggest U.S. credit-card company by purchases can issue another $12.1 billion in asset-backed securities under a U.S. government emergency-lending program, according to an Oct. 30 filing.

General Electric rose 1.5 percent to $14.47.

United Technologies Jumps

United Technologies Corp. added 2 percent to $62.66. A subsidiary of the maker of Otis elevators and Carrier air conditioners signed a two-year F-16 spare parts supply contract with SABCA, a Brussels-based aerospace engineering and manufacturing company.

Financial shares in the S&P 500, which have fallen 10 percent since Oct. 14, tumbled as much as 1.8 percent before paring losses.

Citigroup Inc., the bank that is 34 percent owned by the U.S. government, lost 2.4 percent to $3.99.

“Although conditions and sentiment in financial markets have improved in recent months, significant stress and weaknesses persist,” said Greenlee, who works at Fed’s Division of Banking Supervision and Regulation in Washington, in testimony to a House Oversight subcommittee hearing in Atlanta. “The condition of the banking system is far from robust.”

Denbury Resources Inc. tumbled 10 percent to $13.09, the biggest drop in the S&P 500. The oil and natural-gas producer said it will buy Encore Acquisition Co. for about $4.5 billion to add fields in the Rocky Mountains and Gulf of Mexico.

Dean Foods Co. lost 8.5 percent to $16.69. The biggest U.S. dairy processor said fourth-quarter earnings may fall more than analysts estimate amid rising prices for raw milk.

To contact the reporter on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.

Last Updated: November 2, 2009 16:40 EST