(REUTERS) -- 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.

Investors, looking to put new cash to work after a tough year for markets in 2011, were also encouraged by data from China and Germany suggesting the global economy was on the track for 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 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.

All this positive momentum is very positive going into the new year.

The Dow Jones industrial average was up 223.27 points, or 1.83 percent, at 12,440.83. The Standard & Poor's 500 Index was up 23.49 points, or 1.87 percent, at 1,281.09. The Nasdaq Composite Index was up 50.26 points, or 1.93 percent, at 2,655.41.

Financial stocks were among the market leaders as risk appetite returned. Both the S&P financial sector and material stocks rose nearly 3 percent. Utility names, considered a defensive play, fell 1.4 percent as the day's weakest sector.

The Philadelphia semiconductor index rose 1.5 percent while the S&P information technology sector was up 1.8 percent.

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.

Dow component 3M Co, maker of Post-it Notes and Scotch tape, is buying Avery Dennison Corp's office and consumer products unit. Avery Dennison shares rose 2.3 percent $29.34, while 3M added 2.4 percent to $83.67.

Shares of McDonald's Corp, the Dow's biggest gainer in 2011, fell nearly 1 percent to $99.42 on Tuesday.

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

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 Jeffrey Benkoe)