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

Investors, looking to put cash to work after a tough year in 2011, were also encouraged by data from China and Germany suggesting improvement in those major economies. The broad S&P index has risen more than 10 percent from its November 25 close.

The pace of growth in U.S. manufacturing 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 the highest in nearly 18 months.

The beginning of the year tends to start out positive as people want to put money to work, but the overseas data can't be overstated in its importance, especially since the U.S. data has been so strong as well, said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York.

The Dow Jones industrial average was up 178.54 points, or 1.46 percent, at 12,396.10. The Standard & Poor's 500 Index was up 18.63 points, or 1.48 percent, at 1,276.23. The Nasdaq Composite Index was up 38.44 points, or 1.48 percent, at 2,643.59.

Financial stocks were among the market leaders as risk appetite returned. Both the S&P financial sector and materials companies' stocks rose nearly 3 percent. Utility companies, considered a defensive play by investors, fell 1.4 percent as the weakest sector, dragged lower by Exelon Corp, which fell 3.9 percent after a downgrade from Macquarie.

Barclays Capital downgraded Intel Corp and other semiconductor stocks, predicting a volatile year for the group as an inventory correction extends into the first quarter.

JPMorgan upgraded its recommendation for Cisco Systems Inc, sending shares of the Dow component up 3.1 percent to $18.59.

Blue-chip 3M Co, maker of Post-it Notes and Scotch tape, is buying Avery Dennison Corp's office and consumer products unit, the companies said. Avery Dennison rose 1.8 percent $29.19, while 3M added 2.2 percent to $83.51.

Shares of McDonald's Corp, the Dow's biggest gainer in 2011, fell 1.4 percent to $98.95 on Tuesday.

Investors may gain more insight into the Federal Reserve's view of the economy when the Fed's Open Market Committee is due to release minutes of its December 13 meeting at 2 p.m. (1900 GMT).

Market sentiment also gained after news China, the world's largest consumer of metals, avoided economic contraction in December. Also boosting investors' mood, German unemployment fell more than forecast.

Four-fifths of companies trading on the New York Stock Exchange rose, while 75 percent of Nasdaq-listed shares were in positive territory. Volume topped 3 billion shares.

(Reporting By Ryan Vlastelica; Editing by Kenneth Barry)

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