Aug. 14 (Bloomberg) -- U.S. stocks rose for the first time in three days after a trade group loosened restrictions on Fannie Mae and Freddie Mac to help revive the mortgage industry.

Fannie Mae and Freddie Mac, the largest sources of financing for U.S. home loans, each jumped more than 7 percent after the Securities Industry and Financial Markets Association said larger loans financed by the two companies will be allowed in the main market for mortgage bonds. PMI Group Inc., the second-biggest mortgage insurer, rallied 49 percent on plans to raise cash by selling businesses. General Motors Corp. climbed the most in a month on falling oil prices and the automaker's plan to accelerate a cost-cutting program.

The Standard & Poor's 500 Index added 7.1 points, or 0.6 percent, to 1,292.93. The Dow Jones Industrial Average increased 82.97, or 0.7 percent, to 11,615.93. The Nasdaq Composite Index added 25.05, or 1 percent, to 2,453.67. Two stocks rose for each that dropped on the New York Stock Exchange.

``Financials, while extraordinarily beaten down and with extraordinarily negative sentiment, I think two years from now will have been a brilliant move,'' Fritz Meyer, the Denver-based senior market strategist at Invesco Aim, which manages about $162 billion, told Bloomberg Television.

The S&P 500 Financials Index rallied 2.6 percent, recovering almost a third of its 8 percent tumble in the previous two days. The group is up 22 percent from its 2008 low on July 15, while still down 28 percent in 2008. The gain in banks today overpowered early declines in benchmark indexes spurred by higher-than-forecast growth in consumer prices.

Fannie, Freddie

Fannie Mae added 7.7 percent to $8.23. Freddie Mac increased more than 7 percent to $5.94. Revised guidelines for the so- called To Be Announced market will accept securities composed of as much as 10 percent of the loans, according to a statement from the trade group. The group said jumbo mortgage borrowers may pay lower interest rates as a result of the change.

PMI surged $1.38 to $4.17 after agreeing to sell its Australian and Asian businesses to QBE Insurance Group Ltd. for about $896 million. The stock is still down 69 percent this year amid the worst housing slump since the Great Depression. MGIC Investment Corp., PMI's larger rival, jumped 10 percent to $7.80.

An index of 15 homebuilders in S&P indexes rallied 4.4 percent.

Banks and builders also advanced after former Federal Reserve Chairman Alan Greenspan told the Wall Street Journal that the housing market may recover next year.

Greenspan's Call

``Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,'' he said, according to the newspaper.

The group of financial stocks in the S&P 500 gained even after Morgan Stanley and JPMorgan Chase & Co. agreed to pay fines and buy back auction-rate securities that state regulators said were fraudulently sold to investors, according to a settlement with New York Attorney General Andrew Cuomo and a group of other state regulators.

Morgan Stanley rose 1.2 percent to $40.64. JPMorgan increased 2.4 percent to $37.81.

GM had the steepest gain in the Dow, climbing 11 percent to $11.35. The largest U.S. automaker, seeking to speed up its restructuring plan, said it may be able to reap more of the $10 billion in projected savings this year instead of in 2009.

Ford, the world's third largest automaker, increased 4.5 percent to $5.10.

`Attractively Valued'

``We are constructive. We are saying `add to your portfolios, be buying equities. Equities are very attractively valued,''' said Jason Pride, who oversees $6 billion as director of research at Haverford Trust in Radnor, Pennsylvania, in a Bloomberg Television interview.

Gannett Co. had the biggest gain in almost 21 years, climbing 11 percent to $21.31. The largest U.S. newspaper publisher plans to eliminate about 1,000 positions at its U.S. community newspapers as advertising sales continue to decline.

SanDisk Corp. advanced 9.5 percent, the most in four months, to $17.82. The trade journal EE Times said Seagate Technology may bid for the biggest maker of memory cards for digital cameras. Calls to spokesmen Brian Ziel at Seagate and Mike Wong at SanDisk were not immediately returned.

Consumer Shares Climb

Consumer companies in the S&P 500 that are reliant on discretionary spending gained 2 percent after earnings reports from Wal-Mart Stores Inc. and Estee Lauder Cos. The measure has rallied 16 percent since July 14, when the index reached the lowest since 2003.

Wal-Mart added 0.4 percent to $58.10. The world's largest retailer reported second-quarter profit that beat the average analyst estimate and boosted its annual forecast as consumers spent more on lower-priced medicine and food.

Estee Lauder rose the most since January 2007, jumping 14 percent to $51.25. The maker of Clinique and Bobbi Brown cosmetics posted fourth-quarter profit that rose more than analysts estimated as sales of skin lotions and lipsticks in Europe increased.

Stocks opened lower after the Labor Department said consumer prices increased 0.8 percent in July, double the forecast of economists in a Bloomberg survey. So-called core prices, which exclude food and energy, advanced 0.3 percent last month, also more than projected. First-time applications for jobless claims were 450,000 in the week ended Aug. 9 and the total number of people receiving benefits climbed to an almost five-year high.

Inflation Concern

The consumer-prices report may intensify the debate between those Federal Reserve policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel make it less likely that central bankers will be able to keep interest rates unchanged for long.

Companies including Procter & Gamble Co. and McDonald's Corp. have boosted prices to cope with record high commodity prices. The Fed predicted inflation will ease through next year, according to the statement released at its interest rate meeting last week. There's an 86 percent chance policy makers will keep the benchmark lending rate at 2 percent after convening in September, futures contracts show.

Energy stocks slumped 1.3 percent as a group today and were the biggest drag on the market among 10 S&P 500 industries as oil tumbled on concern consumers are using less fuel amid record gasoline prices and slower economic growth.

Oil's Retreat

Oil prices have decreased more than 20 percent since reaching a high on July 3, helping restrain inflation as businesses pare back expansion and consumers spend less.

Exxon Mobil Corp., the world's biggest oil company, fell 0.9 percent to $77.45. Sunoco Inc., the largest oil refiner in the U.S. East, retreated 4.2 percent to $43.36. Oil dropped 0.9 percent to $115.01 a barrel today in New York.

Earnings have slumped 23 percent on average for the 438 companies in the S&P 500 that released second-quarter results since July 8, according to data compiled by Bloomberg.

Existing U.S. home sales fell 16 percent to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent to $206,500 as the real-estate recession deepened, the National Association of Realtors reported. Banks repossessed almost three times as many U.S. homes in July as a year earlier, research firm RealtyTrac Inc. said.

Europe's gross domestic product contracted for the first time since the introduction of the euro almost a decade ago as faltering sales undermined corporate investment and higher costs cut consumer spending. The report, along with the decline in oil prices, sent the euro to a 5 1/2-month low against the dollar.

In India, inflation soared to a 16-year high, the government said, as wholesale prices rose 12.44 percent in the week to Aug. 2, after increasing 12.01 percent in the previous week.

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

Last Updated: August 14, 2008 16:37 EDT