Factories in the U.S. boosted production in January, capping the biggest back-to-back increases in more than two years, showing manufacturing will remain at the forefront of the expansion.

Output (IPMGCHNG) rose 0.7 percent after a revised 1.5 percent gain in December, the best two-month performance since July and August 2009, when the world's largest economy was emerging from the recession, according to figures issued by the Federal Reserve today in Washington. Other reports showed homebuilders turned less pessimistic in February and manufacturing in the New York region grew.

Business investment in new equipment and the need to rebuild inventories as sales improve will probably keep factory assembly lines rolling at the start of 2012. Additionally, a more stable residential real-estate market would remove an impediment to the recovery after declines in home construction subtracted from economic growth in each of the past six years.

"Factories remain a major supporting element of the economy as we enter 2012," said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. "The latest reading from the homebuilders adds to the steady stream of upbeat news on the housing sector."

Stocks rose on optimism that China getting more involved in a solution for Europe's sovereign debt crisis. The Standard & Poor's 500 Index climbed 0.4 percent to 1,355.52 at 11:53 a.m. in New York.

David Fuller's view The Weekly View below opens on this theme and I discuss four key reasons for the improvement.