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Dow, S&P and Nasdaq Hit 15-Month Highs

Stocks rallied to their highest levels in over a year on this first trading day of 2010, buoyed by a trifecta of news: A report that showed growth in the manufacturing sector, the dollar's pullback and an upgrade on Intel.

The Dow Jones Industrial Averageand S&P 500touched their highest levels in 15 months, and for the tech-heavy Nasdaq, 16 months. All three indexes gained at least 1.5 percent.

The ISM's gauge of manufacturing showed growth for a fifth straight month, rising to 55.9in December from 53.6 in November. Economists had expected a more modest uptick to 54.1.

"ISM is good news. Pessimists repent!" Robert Brusca of FAO Economics, wrote in a note to clients. "There is nothing weak or phony about the pace of this recovery or about its breadth in the manufacturing sector," he said.

The ISM report could also bode welll for Friday's jobs report, said Jack Ablin, chief investment officer at Harris Private Bank.

"Good news among manufacturers should set the stage for improved hiring," Ablin wrote in a note to clients. "Historically, there's been a strong relationship between the ISM Hiring Index and the Bureau of Labor Statistic’s non-farm payroll index ... today’s report confirms an improved hiring trend."

The buzz is that Friday's report may show jobs were actually added to the economy in December — the first time that would've happened in two years. Estimates are around 30,000 to 40,000.

There are a few other big economic readings this week, including auto sales on Tuesday and chain-store sales on Thursday, which will offer a clearer picture of how retailers did over the crucial holiday-shopping season.

The morning chatter was also about comments from Ben Bernanke on Sunday: The Fed chairman said the central bank must be open to rate hikes as a possible means of popping asset bubbles. He was speaking at the American Economic Association's annual meeting.

Winterizing Your Portfolio - A CNBC Special Report
Winterizing Your Portfolio - A CNBC Special Report

U.S. markets were closed Friday for New Year's Day. On Thursday, stocks fell, with the three major indexes down about 1 percent. For 2009, the Dow gained 19 percent, the S&P rose 24 percent, and the Nasdaq added 44 percent.

The dollar fellagainst both the euro and yen. US light, sweet crude oil prices settled above $81 a barreland gold jumped to around $1,120 an ounce.

Energy, materials and financials were the biggest gainers.

Shares of Chesapeake Energy rose after French oil giant Total agreed to buy a 25-percent stake in the company's barnett Shale gas fields for $2.25 billion.

Alcoa was one of the Dow's leaders, benefiting from commodities rally.

Bank of America was the biggest gainer on the Dow as Brian Moynihan started his job as the company's new CEO.

Pfizer and Boeing rounded out the Dow's top three.

Intel advanced after Baird raised its rating on the stock to "outperform" from "neutral."

That buoyed the chip sector: The Philadelphia Stock Exchange semiconductor index gained about 2 percent.

Technology overall was strong: Garmin and Sirius XM were among the leaders on the Nasdaq.

European shares started the year higher, while Asian stocks closed mixed, eyeing economic data later in the week.

The earnings calendar was virtually empty today, but fourth quarter earnings season starts soon and likely will be a major influence in the markets in the weeks ahead.

The dispute over carriage of the Fox Networks has been resolved between Time Warner Cable and Fox parent News Corp., while customers of Cablevision remained without Food Network and HGTV, owned by Scripps, as those two parties continue a dispute over carriage rates.

— Reuters contributed to this article.

This Week:

MONDAY: World's Tallest Building Opens (Dubai); ISM manufacturing; construction spending; Fed's Lockhart speaks
TUESDAY: Auto sales; factory orders; pending-home sales
WEDNESDAY: EU regulators' decision on Cadbury/Kraft deal; weekly mortgage apps; Challenger, ADP jobs reports; ISM services index; weekly crude inventories; Fed minutes; Earnings from Family Dollar, Monsanto, Bed, Bath & Beyond
THURSDAY: CES; chain-store sales; Bank of England rate decision; jobless claims; Fed's Hoenig speaks; Earnings from Constellation, Lennar
FRIDAY: Jobs report; wholesale trade; Fed's Lacker speaks; consumer credit

Send comments to cindy.perman@nbcuni.com.