(Bloomberg) – The Standard & Poor’s 500 Index posted its biggest weekly gain since July as rising forecasts for oil demand boosted energy companies and Goldman Sachs Group Inc.’s recommendation lifted industrial shares.

The S&P 500 climbed to an 11-month high on Sept. 10 before retreating yesterday on concern the rally has outpaced prospects for earnings. Schlumberger Ltd. and Halliburton Co. gained more than 6.3 percent for the week as oil climbed above $72 a barrel and the dollar fell. General Electric Co. rallied 5.8 percent after Goldman Sachs said multi-industry companies tend to outperform when manufacturing growth returns.

The S&P 500 rose 2.6 percent to 1,042.73 and climbed for five sessions through Sept. 10, the longest streak of gains since November. The Dow Jones Industrial Average increased 164.14 points, or 1.7 percent, to 9,605.41. The Nasdaq Composite Index added 3.1 percent to 2,080.90. Markets were closed Sept. 7 for the Labor Day holiday.

“There are more signs globally that the recovery is going on,” said Linda Duessel, who helps oversee $402 billion as equity market strategist at Federated Investors Inc. in Pittsburgh. “Things are getting moderately better. We could be early in the new bull market.”

The S&P 500 has surged 54 percent from a 12-year low on March 9 as economic reports from U.S. home sales to manufacturing in China signaled the global recession is ending. Investor Michael Price, who managed some of the best-performing mutual funds during the 1980s and 1990s, said the U.S. equity market resembles 1975-1982, when the S&P 500 doubled.

VIX Declines

The benchmark index for U.S. stock options decreased the most in five weeks. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 4.4 percent to 24.15 and on Sept. 10 fell to 22.86, the lowest intraday level in a year. The index, which gauges the cost of using options to insure against S&P 500 declines, is down from a record 80.86 in November yet above its 20.24 average over its 19-year history.

The S&P 500 is up 2.2 percent so far in September, historically the worst month for U.S. equities. The index retreated 1.3 percent on average since 1928 in that month before this year, data compiled by Bloomberg show.

The S&P 500 plunged 9.1 percent last September after Lehman Brothers Holdings Inc. collapsed. The biggest drop occurred in September 1931 during the Great Depression, when the S&P 500 tumbled 30 percent.

Withdraw Support

The government is moving to withdraw some of its support for financial markets, U.S. Treasury Secretary Timothy Geithner said in a Sept. 10 meeting with the Congressional Oversight Panel that monitors the $700 billion financial-rescue program. Geithner said the rebound in growth won’t be quick, and urged passage by year-end of legislation to toughen oversight of financial markets.

Schlumberger, the world’s largest oilfield-services provider, added 8.1 percent to $60.39. Halliburton climbed 6.4 percent to $26.10. A measure of energy companies in the S&P 500 advanced 4.3 percent, the most among the 10 main industries.

Oil, which reached as high as $72.90 a barrel, ended the week up 1.9 percent to $69.29. The International Energy Agency said China’s consumption and stronger-than-estimated oil use in the U.S. will boost demand.

Gold surged to the highest since March 2008, gaining 1 percent to $1,006.40 an ounce, as the lower dollar increased the appeal of commodities to investors as an inflation hedge. The Dollar Index, which tracks the currency against the six major U.S. trading partners, retreated 2 percent this week. The economic recovery has encouraged investors to sell the greenback and buy higher-yielding assets overseas.

GE Rallies

GE climbed 5.8 percent to $14.67, leading industrial shares to the steepest advance after energy companies. Goldman Sachs upgraded multi-industry companies to “attractive” from “neutral,” saying the stocks tend to outperform the S&P 500 when the Institute for Supply Management’s gauge of manufacturing climbs “sustainably above 50.” The ISM index for August rose more than forecast to 52.9 on Sept. 1, with readings above 50 signaling growth.

FedEx Corp., the second-largest U.S. package-shipping company, increased 9.1 percent to $77.32. Earnings for the quarter ended Aug. 31 will be 58 cents a share, the company said in a release of preliminary results. It had forecast 30 cents to 45 cents a share. FedEx and larger rival United Parcel Service Inc. are considered proxies for the U.S. economy because they handle almost 80 percent of domestic package shipments.

Treasury Yields Fall

The yield on the benchmark 10-year Treasury note dropped for a fifth week, sliding 0.09 percentage point to 3.35 percent, after the relative value of U.S. government debt helped fuel demand at auctions of $70 billion in bonds and notes the last three days.

Advanced Micro Devices Inc. soared 25 percent, the most in the S&P 500, to $5.68 as Barclays Plc said it will benefit from new products and an improving computer market. The second- largest maker of personal-computer processors was raised to “overweight” from “equal weight.”

“Pick your spots, pick your stocks, do your work, and somebody’s going to be selling something too cheaply,” Price, who runs New York-based MFP Investors LLC., said in an interview broadcast on Bloomberg Radio and Television. “This is so much better than summer ‘07. Now we find stuff, and there’s value.”

The S&P 500 reached a record 1,565.15 on Oct. 9, 2007.

Kraft Foods Inc. fell 7.1 percent to $26.10 for the steepest decline in the S&P 500. Cadbury Plc rejected a 9.77 billion pounds ($16.1 billion) offer from the world’s second- largest foodmaker, and Kraft said it will continue to pursue the purchase.

Reports next week will likely show that the government’s auto-rebate program boosted retail sales to their biggest monthly gain in more than three years in August, while manufacturing gained strength, economists surveyed by Bloomberg said. Best Buy, Oracle Corp. and Kroger Co. are among eight companies in the S&P 500 scheduled to release quarterly results.

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