Citigroup Inc., Bank of America Corp., HSBC Holdings Plc and Banco Santander SA gained at least 5 percent after the TED spread, the difference between what lenders and the Treasury pay to borrow for three months, fell to 0.99 percentage point. The Standard & Poor’s 500 Index has surged 18 percent since March 9, the largest 16-day increase since 1982, according to the firm’s index analyst Howard Silverblatt.

The S&P 500 climbed 1.3 percent to 797.87, paring its advance after General Motors Corp. told dealers March sales trailed estimates. The Dow Jones Industrial Average added 86.90 points, or 1.2 percent, to 7,608.92. The MSCI World Index of 23 developed markets rose 1.5 percent, extending its gain since Feb. 27 to 7.2 percent, the most for a month in six years.

“We are seeing improvement in credit markets, which should ultimately allow monetary and fiscal stimulus to make its way through to the real economy,” said Greg Woodard, a strategist at Manning & Napier, which manages $16 billion in Fairport, New York. “Everyone knows there’s a lot of cash on the sidelines, and at some point a lot of people are going to be worried about missing the move up.”

The S&P 500 rose 8.5 percent in March, trimming its 2009 decline to 12 percent, after Citigroup, Bank of America and JPMorgan Chase & Co. said they made money in January and February and U.S. Treasury Secretary Timothy Geithner announced plans to rid financial firms of toxic assets.

Europe’s Dow Jones Stoxx 600 Index rose 2.1 percent in March, the first monthly gain since August.

Treasury’s Help

Financial companies, the best-performing industry in March among 10 in the S&P 500, led today’s gain with a 6.7 percent advance. The industry has tended to drive stock-market recoveries in the past.

“The case for the financials to lead us out is even stronger than it has been historically,” Deutsche Bank AG strategist Binky Chadha told Bloomberg Television. “Whether or not we get that recovery hinges on the Treasury’s initiatives.”

The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

Citigroup, which has received about $45 billion in government rescue funds, added 9.5 percent to $2.53. Bank of America, the largest U.S. lender by assets, advanced 13 percent to $6.82 for the biggest gain in the Dow average.

‘Large Amounts of Assistance’

Citigroup dropped 12 percent yesterday, while Bank of America lost 18 percent after Geithner said on ABC News’s “This Week” that some banks need “large amounts of assistance.”

HSBC, Europe’s biggest bank by market value, climbed 6.6 percent to 395 pence today. Banco Santander, the second-largest, added 5.1 percent to 5.19 euros. Financial shares in the Dow Jones Stoxx 600 Index rose 5.3 percent.

Austria’s ATX Index advanced 4.7 percent, while the U.K.’s FTSE 100 added 4.3 percent for the biggest rallies among benchmarks for 23 developed markets.

GM dropped 28 percent to $1.94. The company, preparing to report on March new-car sales tomorrow, told U.S. dealers the company is less than two-thirds of the way toward its retail goal this month.

GM bondholders doubt a debt exchange will succeed outside of bankruptcy because there isn’t enough time under the Obama administration’s 60-day deadline, according to a person familiar with the thinking of the committee representing creditors.

‘Fundamentally Restructure’

GM sank 25 percent yesterday after President Barack Obama gave the company and Chrysler LLC deadlines to “fundamentally restructure” or lose the government aid that has kept them alive.

Fund managers who report holdings as of quarter-end may have opted to buy shares of the best-performing companies during the S&P 500’s rebound from a 12-year low on March 9, said Craig Peckham, equity trading strategist at Jefferies & Co. in New York.

“Window dressing may have more of an impact on trading today than in the past because we’re coming off a decent rally,” he said. “There may be pressure on portfolio managers to show ownership of” the stocks that have gained the most.

Alcoa Inc., the largest U.S. aluminum producer, jumped 9.7 percent to $7.34 on speculation BHP Billiton Ltd. will buy it.

“Alcoa fits in all the BHP boxes,” Charlie Aitken, executive director at Southern Cross Equities Ltd., wrote in a report today. Alcoa’s assets “appear grossly cheap.”

‘High-Quality Companies’

The stock sank 14 percent yesterday after Aluminum Corp. of China posted a 99.9 percent decline in 2008 profit and forecast a loss in the first quarter on lower prices.

“There are some very high-quality companies out there available at reasonable valuations,” said Michael Shinnick, a money manager in South Bend, Indiana, for Wasatch Advisors Inc., which manages $4.5 billion. The market’s retreat has “taken down the good, the average and the bad.”

Stocks rose today even after home prices in 20 U.S. cities fell the most on record and gauges of consumer confidence and business activity were weaker than economist forecasts. The S&P/Case-Shiller home price index dropped 19 percent in January from a year earlier to the lowest since September 2003.

Lincoln National Corp. added 4.4 percent to $6.69, rebounding from yesterday’s 38 percent plunge. The insurer seeking $3 billion from the U.S. bailout fund said it will pay $500 million of maturing debt when it comes due next week.

Lennar Corp. slid 14 percent to $7.51. The fourth-biggest U.S. homebuilder posted a wider first-quarter loss as the housing slump cut orders by 28 percent and forced the company to write down land.

 SOURCE: Bloomberg