(Bloomberg News) Commodities rebounded from the biggest drop in two weeks after Goldman Sachs Group Inc. said it's turning "more bullish" on raw materials as demand improves. Treasuries gained and U.S. stocks retreated.

Oil and gasoline rose 1.9 percent each. The Standard & Poor's 500 Index slipped 0.1 percent to 1,316.28 at 4 p.m. in New York, its lowest close since April 19, while the MSCI All- Country World Index rose 0.3 percent after losing 1.8 percent yesterday. The euro rebounded from a two-month low versus the U.S. currency, helping send the Dollar Index down 0.3 percent. Ten-year Treasury yields lost two basis points to 3.11 percent, near their 2011 low.

The S&P GSCI Index of commodities gained 1.2 percent, recouping about three-quarters of yesterday's 1.7 percent slump, as Goldman Sachs suggested buying oil, copper and zinc in a reversal of last month's call to sell commodities, while Morgan Stanley raised its forecast for Brent crude by 20 percent. Before today, the S&P GSCI gauge had lost 11 percent since April 8, when it reached its highest level since August 2008.

"The market was pricing in a global growth story up until February, then it shifted into a supply-shock story and then within the last week or two it shifted back into a demand driven story," Jeffrey Currie, head of commodity research at Goldman Sachs in London, said in an interview today. "This shift back to a demand-driven market, albeit weaker demand, is very significant. We are substantially more confident when the market is focused on demand growth."

Commodity Rally

Silver, zinc and nickel climbed at least 2.3 percent to lead an advance in 16 of 24 materials tracked by the S&P GSCI index. Oil gained 1.9 percent to $99.59 a barrel in New York and Brent crude climbed 2.1 percent to $112.46 in London. Goldman, which correctly advised investors to sell crude oil and copper last month before a price slump, raised its 12-month prediction for Brent crude to $130 a barrel from $107.

The S&P 500 swung between gains and losses for much of the day after tumbling 1.2 percent yesterday to close at the lowest level in a month. The index remained below its average from the past 50 days after closing below the technical level yesterday for the first time in more than a month.

Chevron Corp., Alcoa Inc. and Exxon Mobil Corp. rose at least 0.8 percent for the top gains in the Dow Jones Industrial Average. General Electric Co. and Intel Corp. had the biggest losses, falling more than 1.1 percent.

Yandex NV, owner of Russia's most popular Internet search engine, jumped 55 percent in Nasdaq Stock Market trading after raising $1.3 billion in an initial public offering that sold above the proposed price range.

New-Home Sales

Early gains in U.S. stocks came as purchases of new U.S. houses rose in April to the highest level so far this year after plunging to a record low two months earlier. Sales climbed 7.3 percent to a 323,000 annual pace last month, figures from the Commerce Department showed. The median estimate in a Bloomberg News survey of economists was for sales at a 300,000 annual rate. Housing prices rose from a year earlier.

The S&P 500 climbed to an almost three-year high on the final trading day of April. It has slumped 3.5 percent since, while 10-year Treasury yields reached their lows for the year last week, as economic data missed economists' estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program at the end of June. Still, the benchmark has increased almost 5 percent this year amid government stimulus measures and improving earnings.

'Arousing The Bears'

Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in March 2009, said he remains bullish on U.S. equities and likes industrial stocks even though the global economy has slowed. He favors companies such as Caterpillar Inc. and Deere & Co. because their earnings growth continues to exceed expectations and demand for farming and construction equipment remains strong.

"The U.S. and the global economy have clearly slowed pretty significantly," Biggs, who runs New York-based Traxis Partners LP, said in a Bloomberg Surveillance radio interview with Tom Keene. "That's arousing the bears, who believe we're going to slip back into a long soft patch at best or maybe even a double-dip at worst," he said. "For a number of reasons I don't think that's right."

The Stoxx Europe 600 Index rose 0.2 percent, recovering some of yesterday's 1.7 percent decline. Hellenic Telecommunications Organization SA and Hellenic Postbank SA climbed more than 4.3 percent as the Greek government said it will step up plans to sell its holdings in the companies. Renewable Energy Corp. ASA tumbled 17 percent after saying it will reduce output of wafers, cells and modules in response to current market conditions.

Note Auction

Two-year Treasury notes gained after the U.S. sold $35 billion of the securities. The two-year note yield slipped two basis points to 0.51 percent following the first of three Treasury auctions this week totaling $99 billion.

The securities drew a yield of 0.560 percent, compared with the average forecast of 0.562 percent in a Bloomberg News survey of nine of the 20 primary dealers obliged to participate in U.S. debt offerings. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.46, compared with 3.06 last month and an average of 3.38 at the past 10 sales.

The MSCI Emerging Markets Index gained 1 percent, rebounding from its biggest slide in 11 months yesterday. Russia's Micex Index rose 1.6 percent as OAO Gazprom, the country's gas-export monopoly, climbed on an increased share- price estimate by Goldman. The Shanghai Composite Index slipped 0.3 percent, leaving the gauge 9.5 percent below this year's high, on concern the government's measures to curb inflation are slowing growth.

Euro Gains

The euro strengthened 0.5 percent versus the yen. The Ifo institute in Munich said its German business climate index held at 114.2 from April, compared with a projected decline to 113.7 in a Bloomberg survey with 24 forecasts.

Portugal's 10-year bond yield rose 11 basis points to 9.76 percent. The extra yield investors demand to hold the country's debt instead of German bunds, Europe's benchmark government securities, increased five basis points to 6.69 percentage points after touching a record 6.81 percent.

The euro rebounded 0.5 percent to $1.4113 after yesterday slumping below $1.40 for the first time in two months. Greek 10- year bonds rose today for the first time in seven sessions, sending the yield down 27 basis points to 16.76 percent. The yield reached a record of more than 17 percent yesterday.

Greece endorsed an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid, while European Central Bank council member Christian Noyer said a restructuring of Greek debt would be a "horror story."

"The market has been trading not so much euro default risk, but the euro zone's management of the euro solvency crisis," Lena Komileva, global head of G10 strategy at Brown Brothers Harriman & Co., said in an interview with Tom Keene on Bloomberg Television. "I think we are not really seeing the culmination of the crisis, we're seeing probably the transition point where the crisis is becoming more globally significant."