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Stocks Start Off 2012 Strong

NEW YORK ( TheStreet) -- Stocks held on to strong New Year's gains, with a triple-digit advance by the Dow Jones Industrial Average, as encouraging economic reports on U.S. manufacturing and construction spending boosted optimism the economy would continue to recover into 2012.

The blue-chips index eased off its session high but closed higher by 179 points, or 1.5%, at 12,397. Financial stocks Bank of America (BAC) and JPMorgan Chase (JPM) and aluminum producer Alcoa (AA), led gains by 26 of the Dow's 30 components. Other strong sectors included raw materials and energy.

The S&P 500 was up 19 points, or 1.6%, at 1,277. The Nasdaq increased 44 points, or 1.7%, to 2,649.

Promising signs for the health of the U.S. economy gave markets an early jumpstart to 2012. The Institute for Supply Management reported that its manufacturing index rose to 53.9 in December from 52.7 in November. Economists polled by Thomson Reuters expected the index to come in at 53.2. Readings of more than 50 indicate economic expansion.

Construction spending figures for November also topped estimates, although the prior month's data was downwardly revised. The Census Bureau reported a 1.2% rise in construction spending for November, after a revised 0.2% drop in October. Economists expected a 0.5% rise after an originally reported gain of 0.8% in October.

"We are hesitant to make sweeping generalizations based on any one number but the trend for the U.S. economy is most decidedly to the upside," said Dan Greenhaus, chief global strategist with BTIG. "While equities and treasuries did not perform as one might have expected given last year's economic developments, it seems safe that in a speedbump-less world, U.S. equities should push further to the upside," he added.

Stocks held steady after the Federal Reserve revealed it will begin publishing forecasts of its own action later this month in an effort to increase transparency and better shape the expectations of investors, according to the minutes of the Federal Open Market Committee's most recent meeting released Tuesday.

"A number of members indicated that current and prospective economic conditions could well warrant additional policy accommodation, but they believed that any additional actions would be more effective if accompanied by enhanced communication," the minutes said.

European headlines surrounding the region's debt crisis are still a concern, although a key meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy won't take place until next Monday. The two leaders are expected to work out details on stricter rules to curb government spending.

On Tuesday, Germany's DAX climbed 1.5%, while London's FTSE gained 2.1%. Hong Kong's Hang Seng gained 2.4% overnight. Markets remained closed for the New Year's holiday in Shanghai and Japan.

"The biggest question for 2012 is 'will the US economy continue to grow slow, but steady?'" said Marc Pado, market strategist with Cantor Fitzgerald. "Shorter term, we're looking forward to an earnings-driven rally in January, but then would take a defensive position, as Congress debates a budget proposal and the European Union turmoil heightens," added Pado.

"From the corporate side, cash is still king. Inventories are low. Costs are contained. If a stronger dollar pressures crude, costs could come down some. Employment is low and productivity is high, which is a positive for profit margins."

The Dow closed out 2011 with a solid 5.6% gain while the S&P 500 closed the year essentially flat and the Nasdaq dropped by 1.7%.

In corporate news, Chesapeake Energy (CHK - Get Report) and EnerVest will receive $2.3 billion from France's Total (TOT - Get Report) for a 25% stake in a joint venture for oil drilling in the Utica Shale area of Ohio. Under the deal, Total will pay Chesapeake $610 million up front for 619,000 acres in 10 counties in Ohio; EnerVest is receiving $290 million. Chesapeake will get a further $1.42 billion in exchange for drilling through 2014. Chesapeake shares advanced 5.9% to $23.60 and Total shares increased 2.7% to $52.47.

BP (BP - Get Report) is calling on Halliburton (HAL - Get Report) to pay all costs related to the clean-up of the Gulf of Mexico oil spill in April 2010. BP, the U.K. oil giant, previously put the costs at around $42 billion, according to Reuters. Halliburton cemented the failed well that caused the biggest offshore oil spill in the U.S. The explosion of the well also killed 11 people. BP, in a court filing, said it was suing to recover costs and expenses from cleaning up the oil spill, lost profit, and "all other costs and damages incurred by BP related to the Deepwater Horizon incident and resulting oil spill," Reuters reported. BP gained 3.3% to $44.14, while Halliburton shares declined 1% to $34.15.

Sears (SHLD - Get Report), which said last week it was closing up to 120 of its stores after a dismal holiday selling season, named a new chief merchandising officer on Tuesday. The struggling department-store retailer tapped Ron Boire as executive vice president, chief merchandising officer and president of its Sears and Kmart formats. Boire was previously president and CEO of Brookstone. The stock slipped 1.1% to $31.43.

Caterpillar (CAT) locked out 450 union workers at a locomotive plant in Canada. The company is taking a hard line as it hopes to save on labor costs. The company also said recently that its construction equipment market in China would grow 10% in the new year. The stock rose 3.7% to $93.98 on the Dow.

February oil futures settled up $4.13 to $102.96 a barrel after Iran stepped up threats against the U.S. in retaliation for new economic sanctions targeting the oil sector of the world's second largest producer of the fuel. In other commodities, February gold futures gained $33.70 to $1,600.50 an ounce to extend last Friday's 1.7% advance.

The dollar index was down 0.7%. The benchmark 10-year Treasury was down 24/32 pushing the yield to 1.958%.

-- Written by Kaitlyn Kiernan and Chao Deng in New York.

>To contact the writer of this article, click here: Kaitlyn Kiernan

To follow the writer on Twitter, go to @Kaitlyn_Kiernan.

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BP $32.61 -3.00%
CHK $6.02 -8.60%
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Chart of I:DJI
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