Oct. 1 (Bloomberg) -- U.S. stocks rose, sending the Dow Jones Industrial Average to a record, as investors speculated the worst may be over for banks and construction companies hurt by subprime mortgage losses.

Lennar Corp. and D.R. Horton Inc., the two biggest U.S. homebuilders, gained after Citigroup Inc. said recent declines in the stocks have made them attractive. Countrywide Financial Corp., the largest U.S. mortgage provider, led financial shares higher after former Federal Reserve Chairman Alan Greenspan said the credit slump may be ending. Citigroup, the biggest U.S. bank, rallied after saying it expects ``to return to a normal earnings environment'' in the fourth quarter.

The Dow average added 109.09, or 0.8 percent, to 14,004.72, above its July 19 closing high of 14,000.41. The Standard & Poor's 500 Index increased 10.85, or 0.7 percent, to 1,537.6 at 10:12 a.m. in New York. The Nasdaq Composite Index gained 19.82, or 0.7 percent, to 2,721.32.

``There are some examples out there that we have our hands around the subprime problem,'' said Igor Golalic, who manages $2.5 billion at Federated Investment Inc. in Pittsburgh. ``There's a perception that the worst is over, now that the Fed is on our side.''

Greenspan said in a speech in London that that lenders were seeking to buy longer-term assets of lower quality and ``that is a good sign.'' Stocks also climbed after the Institute for Supply Management said manufacturing in the U.S. grew in September at the slowest pace in six months and a gauge of prices declined, giving the Fed more leeway to cut interest rates.

Homebuilders climbed after Citi advised buying shares of Pulte Homes Inc., Centex Corp., D.R. Horton, Lennar and Ryland Group Inc., saying the builders may rally.

``It is precisely when things have gotten this bad that the stocks start looking good,'' wrote Citi analysts led by Stephen Kim.

Lennar gained 77 cents to $23.42. D.R. Horton rose 33 cents to $13.14.

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