Sept. 25 (Bloomberg) -- U.S. stocks rallied, sending the Standard & Poor's 500 Index to a five-year high, after Federal Reserve Bank of Dallas President Richard Fisher said the economy remains strong.

Homebuilders, led by Pulte Homes Inc., climbed on an industry report that showed sales of existing houses fell less than economists forecast. Media stocks gained after analysts at Morgan Stanley and Sanford C. Bernstein & Co. recommended Time Warner Inc. for the first time in more than a year, citing the prospects for its cable and Internet units.

``The market's been so afraid lately of the economy falling off too rapidly, and there's been a fear that the housing slump will slow the economy,'' said Todd Clark, director of trading at Nollenberger Capital Partners, a San Francisco-based brokerage firm. Fisher's comments ``mitigated some of those fears.''

The S&P 500 rose 11.59, or 0.9 percent, at 1326.37, the highest level since February 2001. The Dow Jones Industrial Average jumped 67.71, or 0.6 percent, to 11,575.81. The Nasdaq Composite Index climbed 30.14, or 1.4 percent, to 2249.07.

The Fed's Fisher said aside from the housing market, which is experiencing a ``serious correction,'' the U.S. economy ``is healthy and robust.''

Home Resales

Sales of previously owned homes in the U.S. declined 0.5 percent to an annual rate of 6.3 million, the lowest since early 2004, the National Association of Realtors said today. Economists expected a rate of 6.2 million.

The median price of a previously owned home dropped 1.7 percent in August from the same month last year, the first decline in 11 years.

The day after tomorrow, the Commerce Department will release sales figures of newly constructed homes.

The housing report sent yields on 10-year Treasury notes further below the Fed's target for the overnight lending rate between banks. That move reflects the view the central bank will lower the rate in the coming months to avert a further slowdown.

Yields on the 10-year note fell more than 4 basis points, or 0.04 percentage point, to 4.54 percent, according to Cantor Fitzgerald LP. Trading in futures contracts that allow bets on the direction of interest rates currently imply a 64 percent chance the Fed will cut rates to 5 percent by March.

``The Fed will begin to cut rates in January,'' said David Chalupnik, who helps manage $90 billion as head of equities at First American Funds in Minneapolis. ``The biggest risk in the marketplace today is that earnings growth will begin to slow.'' Lower central bank rates ``will reinvigorate growth,'' he said.

Homebuilders Rise

Reports showing inflation has waned, coupled with falling oil prices, have helped push stocks higher this month. The S&P 500 is up 1.7 percent since Aug. 31 as crude's decline from its July peak has bolstered speculation that consumers will continue spending even as the housing market slows.

Crude for November delivery rose 1.5 percent to $61.45 a barrel in New York. Earlier today, the contract touched $59.52 a barrel, the lowest since March 8.

Pulte Homes jumped $1.35 to $32.66. KB Home, the No. 6 U.S. homebuilder, added $1.37 to $45.62. Toll Brothers Inc., the largest U.S. luxury homebuilder, gained 66 cents to $28.47. The S&P Supercomposite Homebuilding Index climbed 3.4 percent to its highest in more than three months.

Time Warner rose 40 cents to $18.13. Morgan Stanley raised the stock to ``overweight'' with a target price of $26, while Bernstein boosted its rating to ``outperform'' with a target price of $21.

Media Stocks Rise

A measure of media companies in the S&P 500 climbed 1.9 percent for the second-best performance among two dozen industry groups. Comcast Corp., the biggest U.S. cable-television company, rallied $1.47 to $36.59.

Apple Computer Inc., maker of the iPod music player, climbed $2.75 to $75.75. The company's back-to-school sales were ``robust'' and a system software upgrade called Leopard may contribute up to $400 million in profits in the year after its release, ThinkEquity Partners LLC analyst Jonathan Hoopes wrote. He expects the shares to reach $100 within the next 12 months, up from his previous forecast of $90.

Utility and telecommunications shares climbed as falling bond yields make dividend-paying stocks more attractive to investors who seek income.

Utilities yield 3.3 percent as a group, while phone stocks yield 3.2 percent. By contrast, the S&P 500 yields 1.8 percent. TXU Corp, the largest Texas power producer, gained $1.18 to $61.32.

AT&T Gains

AT&T Inc., the No. 1 U.S. telephone company, jumped 59 cents, or 1.8 percent, to $33.49 for the second-biggest gain in the Dow average. Federal Communications Commission Chairman Kevin Martin has asked other commissioners to approve the company's $67 billion purchase of BellSouth Corp. without conditions, said people familiar with the agency's plans.

Pharmion Corp. surged $3.60 to $21.61. The drugmaker and partner GPC Biotech AG said in a statement that a late-stage clinical trial found its experimental prostate cancer treatment reduced the risk of the disease progressing by 40 percent. The companies will seek U.S. Food and Drug Administration approval.

About eight stocks rose for every three that fell on the New York Stock Exchange. Some 1.75 billion shares changed hands on the Big Board, 14 percent more than the three-month daily average.

Altria Ruling

Altria Group Inc., parent of cigarette maker Philip Morris, slid $5.26, or 6.4 percent, to $77.06 for the biggest decline in the Dow average. U.S. District Judge Jack B. Weinstein in Brooklyn, New York, said a class-action suit filed by ``light'' cigarette smokers may go forward. Such cigarettes accounted for 85 percent of industry sales in 2002.

Reynolds American Inc., the second-largest U.S. tobacco company after Altria, dropped $2.27 to $59.75. Carolina Group, the maker of Newport brand cigarettes, slid 68 cents to $55.20.

Walgreen Co., the No. 1 U.S. drugstore by revenue, was down $2.43 at $44.47. While fourth-quarter earnings matched analyst estimates, margins on sales of generic drugs weren't as high as projections.

SanDisk Corp., the world's largest maker of memory cards for portable electronics, lost 54 cents to $54.84. Merrill Lynch & Co. cut the shares to ``neutral'' from ``buy.'' Industry oversupply of NAND flash memory chips in the first half of 2007 may lead to price cuts, Merrill analysts said.

U.S. Steel

U.S. Steel Corp. fell 77 cents to $54.99 after the biggest U.S.-based steelmaker was cut to ``reduce'' from ``neutral'' by UBS AG. High fixed costs and weakening sheet steel prices will lead to a ``significant'' decline in earnings, wrote analyst Timna Tanners.

S&P 500 shares, called Spiders, rose $1.01 to $132.48. Nasdaq-100 tracking shares, known by their QQQQ symbol, added 70 cents to $40.57.

S&P 500 futures expiring in December advanced 9.80 to 1335.70 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures increased 24.25 to 1665.25.

The Russell 2000 Index, a benchmark for companies with a median market value of $611 million, gained 1.2 percent to 727.09. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, climbed 0.9 percent to 13,231.17. Based on its rise, the value of stocks increased by $140.8 billion.

Altria Group Inc. (MO US)
Apple Computer Inc. (AAPL US)
AT&T Inc. (T US)
Carolina Group (CG US)
Comcast Corp. (CMCSA US)
KB Home (KBH US)
Pharmion Corp. (PHRM US)
Pulte Homes Inc. (PHM US)
Reynolds American Inc. (RAI US)
SanDisk Corp. (SNDK US)
Time Warner Inc. (TWX US)
Toll Brothers Inc. (TOL US)
TXU Corp. (TXU US)
U.S. Steel Corp. (X US)
Walgreen Co. (WAG US)

To contact the reporter on this story: Scarlet Fu in New York at scarfu@bloomberg.net.

Last Updated: September 25, 2006 17:41 EDT