Wall Street stocks kicked off 2012 with a sharp rally on Tuesday after data showed U.S. manufacturing activity and construction spending picked up, signaling the economic recovery was gaining steam.

The report added to early market optimism spurred by data from China and Germany that suggested the global economy was on the right track to improvement.

The pace of growth in the U.S. manufacturing sector accelerated in December, its best month since June, while a rise in new orders suggested decent momentum in 2012. Separately, construction spending in November surged to a near 1-1/2 year high.

The big news is that there's no negative news coming out of Europe, so investors can focus on the improving economy and our improving economic data, said Jake Dollarhide, chief executive at Longbow Asset Management in Tulsa, Oklahoma.

People are very optimistic that 2012 will prove to be a big year for the recovery and the stock market.

The Dow Jones industrial average soared 246.54 points, or 2.02 percent, at 12,464.10. The Standard & Poor's 500 Index was up 26.34 points, or 2.09 percent, at 1,283.94. The Nasdaq Composite Index jumped 58.45 points, or 2.24 percent, at 2,663.60.

Financial stocks were among the market leaders as risk appetite came back. The S&P financial index rose 3.2 percent, while industrial stocks also rose 2.8 percent.

In company news, 3M Co added heft to its office supplies business that includes Post-it Notes and Scotch tape brands, acquiring Avery Dennison Corp's office and consumer products unit.

Avery Dennison shares rose 3.8 percent $29.76, while 3M added 2.7 percent to $83.96.

The Federal Open Market Committee will release minutes from its December 13 meeting is due at 2 p.m. ET (1900 GMT).

China, the world's largest consumer of metals, avoided contraction in December, albeit slightly. Also boosting sentiment, German unemployment fell more than forecast.

(Reporting By Angela Moon; editing by Jeffrey Benkoe)