The S&P 500 increased 0.9 percent to 1,324.0, following the biggest January advance in 15 years.
The Dow Jones average rallied 83.55 points, or 0.7 percent, to 12,716.46, trimming an earlier 152-point gain that sent it above its highest close since May. The Russell 2000 Index of small companies jumped 2.1 percent to 809.66.
"The manufacturing is looking pretty good," Allan Flader, a senior vice president at RBC Wealth Management, said in a telephone interview from Phoenix. "It shows that there's not a contraction going on and that we're progressing and moving forward."
Equities rallied after data showing manufacturing in the United States grew at the fastest pace in seven months. Factory indexes in China improved and a British manufacturing gauge jumped to an eight-month high.
"The news on the economy is better," said David Sowerby, a Bloomfield Hills, Mich.-based portfolio manager at Loomis Sayles & Co. "The uncertainty in Europe has diminished. While corporate profits have been less robust, they are still growing. That's what's moving stock prices higher."
The S&P 500 rose 4.4 percent for the best January since it gained 6.1 percent in 1997, according to data compiled by Bloomberg. Earnings beat projections at 67 percent of the 209 companies in the S&P 500 that reported quarterly results since Jan. 9, the data show. Profits probably grew 4.6 percent in the fourth quarter, according to a Bloomberg survey of analysts. The projection has fallen from 6.2 percent at the end of last year.
The Morgan Stanley Cyclical Index of companies most tied to the economy rallied 1.6 percent. A gauge of homebuilders in S&P indexes jumped 3 percent.
Construction spending increased 1.5 percent in December, the biggest gain since August, Commerce Department figures showed today.
The KBW Bank Index rose 1.7 percent as 23 of its 24 stocks gained. Morgan Stanley climbed 4 percent to $19.39. Bank of America added 3.2 percent, the most in the Dow, to $7.36.
Whirlpool surged 13 percent to $61.64 after also reporting a 20 percent gain in fourth-quarter profit. Cost reductions and price increases "positively impacted" the results last quarter, the company said in a statement.