The stock market kicked off the new year with a bang by posting solid gains on the first trading day of 2012 as investors sent their cash back to work in hopes that an improving U.S. economy may end the financial turbulence that characterized 2011.

Fresh data Tuesday seemed to confirm a series of earlier reports, including last month’s sharp drop in the jobless rate, that the economy is slowly mending. U.S. manufacturers ended 2011 with the strongest showing since late spring. A rise in new orders suggested that momentum could carry over into 2012. Spending on construction projects rose for the third time in four months.

Minutes from the latest meeting of the Federal Reserve’s Open Market Committee found the central bankers in a slightly more upbeat mood. At its December meeting, the committee noted that hiring has picked up, though slowly. And central bankers were encouraged that inflation remains moderate, even as consumers are spending more.

Veteran traders, though, aren’t unbuckling their seat belts just yet.   

“There is an old line down here about commuting by roller coaster: It's the safest form of transportation in the world but it's not going get you anywhere,” said Art Cashin, UBS head of trading at the New York Stock Exchange. “So you have to be careful of these patterns.”

Stock prices ended the day with strong gains, with the Dow Jones industrial average up 179.82 points or 1.5 percent at 12,297,  and broader indexes also sharply higher.

Tuesday’s relief rally in stocks also followed better-than-expected economic news from abroad. The unemployment rate in Germany, Europe's biggest economy, fell more than expected in December, and a widely watched report on manufacturing growth in China helped ease fears of a global economic slowdown.

"The beginning of the year tends to start out positive as people want to put money to work, but the overseas data can't be overstated in its importance, especially since the U.S. data has been so strong as well," said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York. "All this positive momentum is very positive going into the new year."

Financial stocks, which have been battered lately by fears of another banking crisis, were among the market leaders. Stocks of stodgier utilities, where defensive investors typically go to hide, fell 1.4 percent. About 80 percent of the companies trading on the NYSE rose; while three-fourths of Nasdaq-listed shares posted gains. Trading was heavy as more than 3 billion shares changed hands. Much of the surge came early in the day, as European investors got the party started. European stocks closed at a five-month high.

Stock watchers caution that further gains in 2012 are going to depend heavily on a series of troublesome unknowns. Despite the relatively good news from Germany, the European economy is expected to slip into recession in the coming months as deep budget cuts in the weaker “peripheral” economies begin to take hold. As they struggle to recover from massive borrowing sprees, governments from Spain to Greece are applying sever austerity measures, including large cutbacks in spending and layoffs of government workers, both of which are expected to stifle economic growth.

Closer to home, uncertainty about U.S. government policies has prompted many companies to take a defensive posture.

“We have our own problems here with leadership going into an election. We really don’t have much policy directive here,” said Brian Battle, director of trading at Performance Trust Capital Partners. "So this is probably going to be unchanged here in the U.S. until we get closer to November and we figure out who’s going to be in charge.”

Small business owners recently told msnbc.com that the political gridlock in Washington is the big threat to their prospects for growth.

Some stock market forecasters are already predicting that 2012 will bring another year of sideways trading.

At Morgan Stanley, U.S. equity strategist Adam Parker figures the market will end the year 7 percent lower, as measured by the S&P 500. He cites recent forecasts from bellwether companies like FedEx and Intel, cutting their profit outlook. He also notes that the problems in Europe have pushed the dollar substantially higher, which makes U.S. products more expensive in overseas markets, where a big chunk of those profits have been coming from.

Despite Tuesday’s encouraging economic news from Europe and China, Parker is among those who expect to see the global economy losing steam in 2012.

“Virtually every economy in the world, maybe outside of Japan, will see decelerating (gross domestic product) in the next couple of quarters,” he said. “So you're going to have that sensation that things are slowing.”