The rally, which marked the first trading day of 2010, drove both the Dow and the S&P 500 to their highest closes in 15 months, while the Nasdaq ended at a 16-month high.
The Institute for Supply Management’s manufacturing index rose to its highest level since April 2006 in December. The report followed similarly strong readings from the commodity-hungry manufacturing sectors in China and India overnight.
That trend and a weaker US dollar helped push natural resource stocks higher as commodity prices rose.
“The ISM number was very, very good, and we think it points to continuing strengthening and overall, bodes relatively well in the near-term for the market,” said Karl Mills, president of Jurika, Mills and Keifer, a Californian investment advisory firm.
The Dow Jones industrial average gained 155.91 points, or 1.50 per cent, to end at 10,583.96. The Standard & Poor's 500 Index rose 17.89 points, or 1.60 per cent, to 1,132.99. The Nasdaq Composite Index jumped 39.27 points, or 1.73 per cent, to 2,308.42.
Volume, although modest, appeared to be the best since 22 December, with most market participants back at work after a long holiday break.
Energy and materials were the top sectors in the S&P 500 as the prospect of stronger manufacturing lifted stocks there.
Oil companies’ shares got a further boost after Deutsche Bank upgraded the US refining sector and raised the ratings on several refiners, including Valero Energy and Sunoco.
Valero jumped 6.8 per cent to $17.89, and Sunoco advanced 6 per cent to $27.67. The PHLX Oil Service index climbed 3.9 per cent.
The Institute for Supply Management said its index of national factory activity rose to 55.9 in December, above forecasts for a reading of 54.3. A reading above 50 indicates expansion.
Both of China’s PMI manufacturing surveys rose in December, with the official reading hitting its highest level in 20 months. That was echoed in India, where the manufacturing hit a seven-month peak last month.
Investors said the reports gave welcome support as investors head into fourth-quarter earnings season later in January. US stocks rose last month after the US unemployment rate unexpectedly fell in November.