Stock index futures pointed to a stronger start for Wall Street on Monday, with futures for the S&P 500, the Dow Jones and the Nasdaq up 0.5 to 0.7 percent by 0913 GMT (4:13 a.m. ET) on the first trading day of the year.

U.S. stocks ended the year with double-digit gains, with the S&P 500 <.SPX> recording its best December since 1991.

The gains marked a recovery to the market's levels before the collapse of Lehman Brothers in September 2008. For the year the S&P rose 12.8 percent, the Dow Jones industrial average <.DJI> climbed 11 percent and the Nasdaq <.IXIC> surged 16.9 percent.

Sentiment improved after data showed China's factory inflation cooled in December as manufacturers expanded more slowly after a strong run in growth, lessening the need for the country's central bank to tighten monetary policy too far.

Later in the session, investors are likely to focus on the Institute of Supply Management's manufacturing survey, due at 1500 GMT (10 a.m. ET), for fresh clues on the health of the economy.

Economists polled by Reuters expect the ISM's high-profile measure of U.S. factory activity to edge higher to 56.9 from 56.6, reinforcing the view that the economy was mending gradually.

On the economic front, a fight over the U.S. budget loomed on Sunday as a top aide to President Barack Obama warned of catastrophic consequences if Republicans follow through on threats to reject an increase in the nation's borrowing limit.

Foreign investors overwhelmingly ranked the U.S. commercial real estate market as their No. 1 choice for investment this year and viewed it as the best opportunity for price appreciation, according to a survey of foreign real estate investors.

U.S. private employers have recorded 11 consecutive months of job gains, yet the number of people who are so discouraged that they have given up searching for work stands at an all-time high.

In company news, some iPhone users in Asia complained of malfunctioning alarms on the first working day of 2011, even after Apple reassured users that its phones' built-in clocks will work from Monday.

Google Inc has approached several magazine publishers about creating a digital newsstand, in a move that could open a new front in the Internet company's rivalry with Apple Inc, according to a news report.

Intel Corp's new microchips, touted as its biggest-ever leap in processing power, include built-in content protection to make it safer for Hollywood studios to offer premium movies to consumers over their personal computers.

The popular Internet telephone service Skype could be dealt a major setback in one of the world's largest markets as the Chinese government cracks down on what it called illegal Internet telephone providers.

Shares in American International Group (AIG) could drop this year as the U.S. government sells stock it owns in the insurer, Barron's reported on Sunday.

The business weekly also reported that Wall Street strategists are bullish about the market's prospects in 2011, expecting stocks to rise an average of 10 percent, with big-cap shares like Exxon Mobil Corp , Wal-Mart Stores Inc and Pfizer Inc
leading the way.

A team of up to 20 Bank of America Corp officials, led by the chief risk officer, Bruce Thompson, have been reviewing thousands of documents amid a threat that it may be a target of WikiLeaks, The New York Times reported on Sunday.

In Europe, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 1 percent, with carmakers among the top gainers.

China's Vice Premier Li Keqiang wrote in an editorial in El Pais on Monday that Chinese officials have faith in Spain's financial system and will continue to take part in government debt auctions.

(Reporting by Harpreet Bhal; Editing by Hans Peters)