US STOCKS-Wall Street climbs in first session of 2011

                                
 * Factory, construction data show growing economy
                                
 * Dow, S&P 500 reach new two-year highs
                                
 * Indexes up: Dow 0.8 pct, S&P 1.1 pct, Nasdaq 1.5 pct
                                
 * For up-to-the-minute market news see [STXNEWS/US]
  (Updates to close, changes byline)
                                
 By Leah Schnurr
                                
 NEW YORK, Jan 3 (Reuters) - U.S. stocks greeted the new
year with a rally on Monday as encouraging signs about the
outlook for manufacturing around the world prompted investors
to inject new money into the market.
                                
 Data from the United States, Europe and China set the tone,
helping the Dow and S&P reach new two-year highs and the Nasdaq
100 <.NDX> closed at its highest in nearly 10 years, but some
investors think caution may be warranted in the short term.
                                
 Financials led the way higher after underperforming the
market last year. Bank of America Corp <BAC.N> jumped 6.4
percent to $14.19 after it agreed to pay $2.8 billion to
mortgage finance giants Fannie Mae <FNMA.OB> and Freddie Mac
<FMCC.OB> to settle claims over soured mortgages. For details,
see [ID:nN03172504]
                                
 Overall, stocks got a boost from the "January effect" when
fund managers are no longer engaged in year-end window dressing
and instead focus on stocks they find attractive.
                                
 "There is a lot of money in cash, a lot of money in bonds
that would like out of bonds, and it's only natural with the
economic improvement it's finding its way to equities," said
Stephen Massocca, managing director at Wedbush Morgan in San
Francisco.
                                
 The Dow Jones industrial average <.DJI> gained 93.24
points, or 0.81 percent, to 11,670.75. The Standard & Poor's
500 Index <.SPX> rose 14.23 points, or 1.13 percent, to
1,271.87. The Nasdaq Composite Index <.IXIC> climbed 38.65
points, or 1.46 percent, to 2,691.52.
                                
 While the uptrend remained in tact, the market has become
overstretched in the short term, with the 14-day relative
strength index suggesting the S&P 500 could struggle from
here.
                                
 "With the overbought condition we have, we could see some
profit taking creep in or short-term weakness," said Bucky
Hellwig, senior vice president at BB&T Wealth Management in
Birmingham, Alabama.
                                
 "But with the economic fundamentals still improving, more
risk being assumed by traders and individual investors and with
the Fed standing ready to print more money, there's no reason
why we can't become more overbought."
                                
 Analysts said that, historically, a strong first day bodes
well for the market's performance for the year.
                                
 Based on data since 1945, if the S&P 500 is up on the first
trading day of the year, it ends the year higher 74 percent of
the time, with an average annual gain of 10.6 percent,
according to Birinyi Associates Inc. in Stamford, Connecticut.
                                
 If stocks end the month of January higher, then 73 percent
of the time the index rises for the year, based on data since
1929, Howard Silverblatt, an analyst at Standard & Poor's,
said.
                                
 U.S. stocks ended 2010 with double-digit gains, and the S&P
500 recorded its best December since 1991. The gains marked a
recovery to September 2008 levels before the fall of Lehman
Brothers.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  For factbox on S&P 500 winners and losers in 2010, see
[ID:nN31141356]
  Consumer shares lead S&P, US stocks shine in
2010,[ID:nN31145214]
  Caterpillar leads blue chip advance in 2010, [ID:nN31145176]
  US stock investors eye January with caution, [ID:nN03174882]
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Data showed the U.S. manufacturing sector grew for a 17th
straight month in December, while U.S. construction spending
increased in November to its highest level since June. For
details, see [ID:nN03175600]
                                
 The global outlook also was bolstered after data showed
China's factory inflation cooled in December, while
manufacturing in Europe accelerated. [ID:nLDE702187]
                                
 The Nasdaq 100's gain was driven largely by Apple Inc
<AAPL.O>, which rose 2.2 percent to $329.57. Oppenheimer raised
its estimates and price target on company. It was the highest
close for the index since February 2001. [ID:nSGE702087]
                                
 Alcoa Inc <AA.N>  gained 2.7 percent to $15.80 after
Deutsche Bank upgraded the stock. [ID:nSGE7020A3]
 (Additional reporting by Chuck Mikolajczak and Caroline
Valetkevitch; Editing by Kenneth Barry)