March 5 (Bloomberg) -- Barton Biggs, co-founder of hedge fund Traxis Partners LLC, said U.S. stocks may advance 15 percent in the next two or three months, led by banks.

The Standard & Poor's 500 Index tumbled after setting a record in October, rebounded at the end of January and then resumed its decline. The measure is now almost 15 percent below its Oct. 9 peak following at least $181 billion in bank losses from the collapse of the U.S. subprime mortgage market.

``Almost every bear market ends with a double bottom, and I think we are in the process of making a second bottom right now,'' Biggs, the former global investment strategist for Morgan Stanley, said during a phone interview today in Dubai. ``The bad news has been discounted, and so the news doesn't have to get better for the market to go up. It just has to be less bad than what has already been discounted.''

The rally will begin with banks and financial service companies, which lost the most last year among 10 industries in the S&P 500, according to Biggs, who helps oversee $1.5 billion.

``There are such big short positions in the financials and there will be a desperate scramble to cover shorts,'' Biggs said. The longer-term rally in U.S. stocks will be led by energy companies and makers of industrial and capital goods, he added.

The S&P 500 rose 0.8 percent to 1,337.89 at 10:08 a.m. in New York. The benchmark for U.S. equities has fallen four consecutive months.

Biggs correctly forecast stocks would rebound from declines in March and August last year.

On March 16, following a 4.6 percent decline by the S&P 500 from its Feb. 20 peak, he said stocks were approaching a bottom and predicted a gain of as much as 15 percent for the index in 2007. The S&P 500 rose as much as 12 percent from that level before paring its annual gain to 3.5 percent.

On Aug. 16, after a 9.4 percent decline by the index, Biggs said it was bottoming and predicted a rebound. The benchmark rose 11 percent during the next seven weeks.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net.

Last Updated: March 5, 2008 10:12 EST