By Elizabeth Stanton Jan. 4 (Bloomberg) -- U.S. stocks advanced following the market’s biggest annual rally in six years after a gauge of manufacturing increased more than estimated and freezing weather sent oil prices higher. Caterpillar Inc. and United Technologies Corp. gained at least 2.2 percent as the Institute for Supply Management’s factory index rose to a more than three-year high. Exxon Mobil Corp. and Chevron Corp. climbed as crude rallied above $81 a barrel. Newmont Mining Corp. and Alcoa Inc. increased on higher metals prices, while Morgan Stanley jumped 3.8 percent after analysts advised buying the shares. The S&P 500 added 1.4 percent to 1,131.03 at 10:43 a.m. in New York. The Dow Jones Industrial Average increased 141.17, or 1.4 percent, to 10,569.22. Intel Corp. led gains in technology shares after Robert W. Baird & Co. forecast increased demand for personal computers. Shares in Asia and Europe rallied. “The statistical rebound in the economy is still a dominant factor,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $60 billion. “It’s going to be an uneasy but positive year in our view.” U.S. equities extended a global advance spurred by an increase in a barometer of Chinese manufacturing. The Chinese purchasing managers’ index rose to a seasonally adjusted 56.1 in December, data compiled by HSBC Holdings Plc and Markit Economics showed. A $586 billion stimulus package, subsidies for consumer purchases and record new loans have driven the nation’s recovery from the slowest growth in almost a decade. ‘Strong Recovery’ “Stimulus packages especially in Asia are driving a strong recovery,” said Markus Steinbeis, head of equity portfolio management at the German unit of Pioneer Investments, which oversees about $221 billion globally. “Asia is out of the woods and this should have a positive impact on commodity and infrastructure names.” Benchmark indexes extend gains after the ISM’s factory index for the U.S. rose to 55.9 in December from 53.6. Readings greater than 50 signal expansion. The median estimate of economists in a Bloomberg survey was 54.3. Caterpillar, the world’s largest maker of construction equipment, rose 2.4 percent to $58.37. United Technologies, the maker of Otis elevators are Carrier air conditioners, gained 2.1 percent to $70.85. 23 Percent Rally The S&P 500 climbed 23 percent last year, including a 65 percent rebound from a 12-year low in March, after governments around the world enacted stimulus measures to end the recession. Stocks fell in the last trading session of 2009 after the biggest annual rally in six years left the S&P 500 trading at about 24 times its companies’ earnings, the most expensive level since 2002, according to Bloomberg data. Exxon, the biggest U.S. oil producer, added 1 percent to $68.88 as crude for February delivery rose as much as $2.32, or 2.9 percent, to $81.68 a barrel. Heating oil climbed to the highest in 14 months. Chevron, the second-largest U.S. energy producer, gained 2.5 percent to $78.91. The stock may advance as much as 20 percent over the next 12 months as oil prices climb and the company’s global exploration projects proceed, Barron’s said, citing analysts and investors. Energy Asset Sale Chesapeake Energy Corp. rose 5.4 percent to $27.27. Total SA, Europe’s third-largest oil producer, will pay as much as $2.25 billion to buy 25 percent of Chesapeake’s assets in Texas. Total will fund 60 percent of Chesapeake’s share of drilling and other costs in its Barnett Shale assets, which Chesapeake says produce about half of all shale gas in the U.S. Newmont Mining Corp., the largest U.S. gold producer, rallied 2.8 percent to $48.64 as bullion rose the most in two months on the New York Mercantile Exchange’s Comex unit. Alcoa, the largest U.S. aluminum maker, climbed 4 percent to $16.77. Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly traded copper producer, rose 3.7 percent to $83.27. Copper rose to a 16-month high in New York as a strike in Chile threatened to curb output, while aluminum, lead, nickel, tin and zinc increased in London. Bank of America Corp., the second-biggest U.S. bank by market value, added 2.5 percent to $15.44, and Citigroup Inc. advanced 1.2 percent to $3.35. Morgan Stanley Upgraded Morgan Stanley climbed 3.8 percent to $30.72. The sixth- biggest U.S. lender by assets was upgraded at UBS AG and Credit Suisse Group AG, which said the firm’s investment-bank division and changes in the business structure will drive growth in 2010. UBS raised its recommendation to “buy” from “neutral,” while Credit Suisse upgraded to “outperform” from “neutral.” Intel rose 2.8 percent to $20.98, the highest since September 2008 on a closing basis. The world’s biggest chipmaker was raised to “outperform” from “neutral” at Robert W. Baird. Barton Biggs, who piled into stocks at the bottom of the global bear market in March, is loading up on the biggest U.S. companies and speculating commodities will drop this year. The 77-year-old manager of Traxis Partners LP is buying household- product manufacturers, drugmakers and computer companies on speculation they will prove bargains as earnings surge. “Big capitalization, high-quality U.S. stocks are very, very cheap compared to everything else,” said Biggs, who cited Procter & Gamble Co. and Johnson & Johnson in a Dec. 29 interview. He called commodities “an investment vehicle for maniacs” that will probably fall in 2010. Procter & Gamble added 0.8 percent to $61.11, while Johnson & Johnson increased 0.8 percent to $64.92. Warren Buffett recorded his worst performance against the S&P 500 in a decade after committing $26 billion to a railroad takeover and lowering his expectations for investment returns. Buffett’s Berkshire Hathaway Inc. rose 2.7 percent on the New York Stock Exchange in 2009. It was Berkshire’s worst showing since falling 20 percent in 1999, compared with a 20 percent gain in the index. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

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