Wall Street stocks surged more than 1 percent as the new trading year kicked off on Monday and the rally of late 2010 resumed on encouraging signs about the economic outlook and a seasonal effect.
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.
The Nasdaq 100 hit a 10-year high, driven largely by gains in Apple Inc, which hit an all-time high at $330.20 and is up 56 percent since the end of 2009. The Nasdaq 100's level is still half of the all-time high of 2000.
Bolstering the economic picture, 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.
The global outlook also was bolstered after data showed China's factory inflation cooled in December, easing concerns the government would raise interest rates or take other steps to control growth.
Two positive reports this morning were topped off by positive investor sentiment caused by the momentum we saw in late 2010, said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois.
U.S. stocks ended 2010 with double-digit gains, with the S&P 500 recording its best December since 1991. The gains marked a recovery to September 2008 levels before the fall of Lehman Brothers.
The Dow Jones industrial average was up 121.81 points, or 1.05 percent, at 11,699.32. The Standard & Poor's 500 Index was up 16.78 points, or 1.33 percent, at 1,274.42, hitting fresh two-year highs. The Nasdaq Composite Index was up 42.29 points, or 1.59 percent, at 2,695.16.
Evans said the January effect was even pronounced, given 2010's strong ending. He said investors ask themselves, What am I going to do with my cash? Part of it is the tax year is over, and corporations and people have a better idea of how much money they have to invest.
The Nasdaq 100 hit an intraday high of 2268.30, its highest level since February 2001.
For 2010, the S&P rose 12.8 percent, the Dow Jones industrial average climbed 11 percent, and the Nasdaq surged 16.9 percent.
From its July low the S&P has risen 23 percent, boosted by improving economic data, positive earnings reports and stimulus measures by the U.S. Federal Reserve.
Among stocks, Bank of America Corp will put aside $3 billion in the fourth quarter related to poorly underwritten mortgages it sold to Fannie Mae and Freddie Mac after the bank agreed to settle claims over the repurchase of those loans. Bank of America shares jumped 5.3 percent to $14.05.
Other top advancers included Alcoa Inc , which gained 3.8 percent to $15.99 after Deutsche Bank upgraded the stock on optimism about aluminum prices and a belief that Alcoa has turned the corner from an operational point of view.
Apple was up 2.3 percent at $329.93.
Analysts said that, historically, a strong first day bodes well for the market's performance for the rest of 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 the month of January ends higher, then 73 percent of the time the index is up for the year, based on data since 1929, Howard Silverblatt, an analyst at Standard & Poor's, said.
Median forecasts from respondents surveyed by Reuters at the start of December -- before President Barack Obama agreed to a plan to extend tax cuts -- showed the S&P 500 rising to 1,325 by the end of 2011.
(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)