May 4 (Bloomberg) -- U.S. stocks rose, erasing the Standard & Poor’s 500 Index’s 2009 loss, after home sales beat estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.

Financial stocks rallied after a Goldman Sachs Group Inc. strategist boosted his rating on the industry, while Wells Fargo & Co. added 24 percent as Warren Buffett called it a “fabulous” bank. Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. gained more than 6.9 percent as metal prices climbed. Lennar Corp. surged 9.3 percent, helping lift an S&P measure of 13 homebuilders by 9.2 percent.

“It’s like a snowball,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “It’s building with every favorable economic report that we get. That’s getting money coming out of cash and into riskier assets.”

The S&P 500 added 3.4 percent to a four-month high of 907.24 at 4 p.m. in New York. The index was never up year-to-date in 2008 as it went on to plunge 38 percent for its worst annual performance since 1937. The Dow Jones Industrial Average increased 214.33 points, or 2.6 percent, to 8,426.74. The MSCI World Index of 23 developed markets rose 3 percent, also erasing its 2009 drop.

Stocks have soared since March 9, with the S&P 500 advancing 34 percent, as investors speculated U.S. Treasury Secretary Timothy Geithner’s plan to finance the purchase of as much as $1 trillion in illiquid assets from banks will help end the recession. Equities were propelled by companies beating first-quarter profit estimates. More than two-thirds of the S&P 500 companies have exceeded analysts’ earnings projections.

Shares Doubled

Technology companies, raw-material producers and consumer companies reliant on discretionary spending are the three industries in the S&P 500 that have rallied in 2009, each rising more than 10 percent. Eight companies in the index, including Whole Foods Market Inc. and Sun Microsystems Inc., have more than doubled.

The S&P 500’s surge in the past two months has been led by shares of banks, automakers and retailers -- companies that need economic expansion for growth. At the same time, so-called defensive stocks, or companies less tied to economic swings, lagged behind. A measure of health-care providers has risen 13 percent since March 9, while a gauge of food makers, tobacco producers and grocers increased 15 percent. That’s less than half the S&P 500’s advance.

88% Surge

Financial stocks in the S&P 500 have jumped 88 percent in the past two months. They plunged 57 percent in 2008 on global bank losses from the collapse of the U.S. mortgage market that have since reached $1.4 trillion, according to data compiled by Bloomberg.

The S&P 500 is still down 42 percent from its October 2007 record high of 1,565.15.

The market extended gains today after the National Association of Realtors said the number of Americans signing contracts to buy previously owned homes jumped 3.2 percent in March. Economists projected no change, according to the median estimate in a Bloomberg survey. A separate report from the Commerce Department showed spending on U.S. construction projects unexpectedly rose in March for the first time in six months on increases in commercial and government projects.

Financial shares in the S&P 500 advanced 10 percent, the most among 10 industries.

‘Love’ to Buy Bank

Wells Fargo rose 24 percent to $24.25, the highest price since January. Buffett, whose Berkshire Hathaway Inc. is the company’s largest shareholder, said that while he’d “love” to buy the entire bank, he is unable to because Berkshire wouldn’t get permission from regulators. He spoke on May 2 at Berkshire’s annual meeting in Omaha, Nebraska.

Buffett added that losses at Citigroup Inc. have distorted the public perception of U.S. banks. He said lenders including Wells Fargo are better able to withstand the recession.

David Kostin, a Goldman Sachs strategist, upgraded his rating on financial stocks to “neutral” from “underweight” today, citing the economic stimulus package and better-than- estimated results from banks during the first quarter. The U.S. government and the Federal Reserve have spent, lent or committed at least $12.8 trillion to help end the worst financial crisis since the Great Depression, according to Bloomberg data.

‘Economy Has Bottomed’

“The economy has bottomed,” said Jerry Jordan, whose Jordan Opportunity Fund has gained 7.8 percent this year and counts the Financial Select Sector SPDR Fund as its largest holding. “The assets on banks’ balance sheets are better on the margin, and therefore these stocks have more value than people have been willing to give them.”

Bank of America Corp. soared 19 percent to $10.38 for the Dow average’s steepest rise. The biggest U.S. lender by assets denied a Financial Times report that it’s trying to raise $10 billion. The bank hasn’t been given a “final number” by the Federal Reserve on how much capital it may need to raise, Scott Silvestri, a Bank of America spokesman, said today in an interview.

Alcoa, the largest U.S. aluminum producer, surged 6.9 percent to $10.36 for a fourth day of gains -- the longest streak in three months. Freeport-McMoRan Copper & Gold Inc. rallied 9.4 percent to $48.64.

Raw-material producers in the S&P 500 increased 5.6 percent as a group, the second-biggest gain among 10 industries. China’s manufacturing expanded in April after declines in export orders moderated and investment surged because of the government’s 4 trillion yuan ($586 billion) stimulus package.

Surging by Daily Limit

Copper and zinc futures rose by the exchange-imposed 6 percent daily limit in Shanghai on an improved demand outlook. In New York, copper climbed 2 percent. Gold gained for the first time in three days, while silver, oil and natural gas also jumped.

The MSCI Emerging Markets Index of 23 developing economies climbed 6.1 percent as Brazil’s Bovespa index rose above 50,000 points for the first time since September. Rising demand from China will help ore prices stabilize this quarter, Goldman Sachs said. Cia. Vale do Rio Doce, the world’s biggest iron-ore miner, climbed 8.8 percent in Sao Paulo trading, the most in a month.

“The speed of this bounce back is definitely surprising,” said Barbara Marcin, who helps manages $1.5 billion at Gamco Investors Inc. in Rye, New York. “We’ve taken the worst-case scenario off the table. We’re in a recession, but it’s not a depression.”

Homebuilders Rally

A gauge of 13 homebuilders in S&P indexes increased 9.2 percent, led by a 16 percent surge in M/I Homes Inc., a construction company with operations in Ohio, Indiana and Florida. Lennar, which lost half its value last year, rallied 9.3 percent to $10.34.

Taiwan’s Taeix index advanced 5.6 percent, extending its two-day gain to 13 percent, the biggest back-to-back rally in more than 18 years, after Goldman Sachs raised its rating on speculation the nation will boost ties with China.

“There’s tremendous potential for recovery,” John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $200 billion, said in a Bloomberg Radio interview. “It’s possible investors will pile into stocks as soon as there is some whiff of better economic news.”

Sprint Nextel Corp., the best performing S&P 500 stock this year, added 7.1 percent to $5. The third-largest U.S. mobile- phone company unexpectedly posted a profit for the first quarter as it cut jobs and added customers in the Boost Mobile unit.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: May 4, 2009 16:40 EDT