(Bloomberg) — U.S. stocks rose, rebounding from the first two-week decline since July, as Goldman Sachs Group Inc. recommended large banks and a report showed service industries returned to growth after 11 months of contraction. The dollar fell versus the euro, crude oil slipped and Treasuries gained.

Wells Fargo & Co. rallied 4.9 percent and JPMorgan Chase & Co. added 1.9 percent as Goldman Sachs said big banks will outperform regional lenders. Nordstrom Inc. and Limited Brands Inc. climbed at least 6 percent after the Institute for Supply Management’s gauge of non-manufacturing businesses topped estimates. Brocade Communications Systems Inc. jumped 13 percent on takeover speculation.

The Standard & Poor’s 500 Index added 0.6 percent to 1,031.77 at 10:05 a.m. in New York. The Dow Jones Industrial Average gained 32.65 points, or 0.3 percent, to 9,520.32. Europe’s benchmark index advanced 0.2 percent, while Asia’s slipped 0.8 percent. Almost four stocks rose for each that fell on the New York Stock Exchange.

“Growth is still going to surprise people on the upside in the near-to-intermediate term,” said Walter Todd, who manages $750 million as co-chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina. “The fourth quarter last year was so bad from an economic and earnings perspective that simply lapping that is going to be a fairly positive event.”

The S&P 500 surged 32 percent in the last two quarters amid expectations the worst of a global recession is over. Lower- than-forecast data on manufacturing and jobs last week spurred concern the seven-month rally may have outpaced the prospects for earnings growth, while New York University Professor Nouriel Roubini said Oct. 3 that “markets have gone up too much, too soon, too fast.”

‘1,100 by Year-End’

“Tactical indicators at current levels would normally lead us to downgrade equities, but their signals are less meaningful at this stage in the cycle,” wrote a team of Credit Suisse Group AG strategists led by Andrew Garthwaite in a report today titled “Equities: No Time to Sell.” “A further near-term correction is possible, but we believe that the S&P 500 will be 1,100 by year-end.”

Alcoa is scheduled to release third-quarter results on Oct. 7, the first company in the Dow average to report earnings. Analysts’ predictions compiled by Bloomberg suggest companies will report a ninth straight quarter of declining profits before returning to growth in the final three months of the year.

‘Earnings Promise’

Money managers are betting that the longest stretch of falling profits since the Great Depression will end in 2010 when the net income of companies in the S&P 500 rises 26 percent, followed by a 22 percent increase in 2011, according to data compiled by Bloomberg.

“If the third quarter was the quarter when risk tolerance improved, the fourth quarter is likely to be the quarter when markets look for the recent earnings promise to be delivered,” David Shairp and Rekha Sharma, strategists at JPMorgan Asset Management, wrote in a report. “Provided it does not turn into a rout, the current retreat in markets is a needed ‘shake out.’”

ISM’s factory index on Oct. 1 showed that the manufacturing industry expanded less than economists anticipated in September. Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2.

JPMorgan climbed 1.9 percent to $42.65. Wells Fargo, the San Francisco, California-based lender, gained 4.9 percent to $27.56. Goldman Sachs raised its rating on large U.S. banks to “attractive,” citing the outlook for earnings. The firm also upgraded Wells Fargo to “buy” from “neutral.”

Capital One, Brocade

Capital One Financial Corp. was added to Goldman Sachs’s “conviction buy” list. The analysts said third-quarter revenue at the bank will be better than expected. Capital One climbed 4.5 percent to $34.69.

Brocade jumped 13 percent to $8.65. The California-based data-storage and networking company is considering a sale, a person familiar with the matter told Bloomberg News today. A spokesman for San Jose, California-based Brocade said the company doesn’t comment on speculation.

ConocoPhillips rose 1.6 percent to $47.56. Shares in the third-largest U.S. oil company were raised to “buy” from “hold” at Deutsche Bank AG, which said ConocoPhillips “has a very large legacy oil position, which will be highly profitable over the coming years.”

Bank of America Gains

Bank of America Corp. rose 2 percent to $16.67. The bank plans to make a decision on the appointment of an “emergency” chief executive officer this week in case Kenneth D. Lewis steps down before the end of the year, the Wall Street Journal also reported, citing unidentified people familiar with the situation.

SciClone Pharmaceuticals Inc. tumbled 14 percent to $3.58. The drugmaker said it discontinued a study of its experimental drug for pancreatic cancer after a recommendation by a safety review committee.

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