The Chicago group's production gauge rose to 74, the highest level since October 2004, from 71.3 in November. The gauge of new orders climbed to 73.6 from 67.2. The employment measure increased to 60.2, last exceeded in April 2005, from 56.3 the prior month.

Retailers' 2010 holiday sales jumped 5.5 percent for the best performance since 2005, MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, said this week. That compared with a 4.1 percent gain a year earlier. The numbers include Internet sales and exclude automobile purchases.

Automakers are also seeing sales increase. Vehicles sold at an annualized 12.3 million rate in November for a second month, the fastest pace since the U.S. government's "cash for clunkers" program in 2009, said Autodata Corp.

National Manufacturing
Economists watch the Chicago index and other regional manufacturing reports for an early reading on the outlook nationally. The Chicago group says its membership includes both manufacturers and service providers, making the gauge of measure of overall growth. Its members have operations across the U.S. and abroad.

Other measures of manufacturing so far showed strength this month. One regional survey showed New York-region factories rebounded more than forecast in December while another Fed survey showed those in the Philadelphia area expanded at the fastest pace since April 2005.

The ISM's monthly national factory index, due Jan. 3, may rise to 56.9 in December from 56.6 in November, according to economists surveyed.

Foreign sales are a bright spot for factories as exports in October rose to the highest level in more than two years, according to Commerce Department data released Dec. 10. Some businesses are responding to greater demand from the U.S. and abroad by replacing aging equipment with more innovative, fuel- efficient machinery.

Eoin Treacy's view The US housing crisis and the failure of unemployment rates to decrease have weighed on sentiment towards the US economy. However, the global economy is performing well and the USA is home to a large number of globally significant companies that dominate their respective niches. Globally oriented bluechips continue to perform in line with the global economy rather than the domestic US economy and occupy a significant weighting in major US indices. As the US economy finally starts to recover from the credit crisis internal demand should start to offer an additional tailwind to the stock market.

The Dow Jones Industrials Average ranged for much of 2010 but held above 11,000 from October, allowing the slight overextension relative to the 200-day MA to be unwound. It hit a new recovery high before Christmas and a sustained move below 11,000 would be required to question medium-term upside potential.

The Dow Jones Transportation Index has unwound the majority of its bear market decline. It has held above 5000 for the last month and a sustained move below 4500 would be required to question medium-term potential for additional upside.

The Nasdaq-100 rallied impressively from September to test the 2007 peak above 2200. A sustained move below 2000 would be required to question medium-term upside potential.

The KBW Regional Banks Index pushed back above the psychological 50 earlier this month and a sustained move below 40 would be required to question medium-term scope for continued higher to lateral ranging.