* U.S. factory, construction data suggests economic pickup
* Automakers gain after February U.S. sales increase
* Honeywell up after dropping United Tech bid
* Indexes up: Dow 1.74 pct, S&P 1.86 pct, Nasdaq 2.18 pct (Updates to early afternoon)
By Abhiram Nandakumar
March 1 (Reuters) - Wall Street surged on Tuesday, led by financial and technology stocks, after encouraging U.S. factory and construction data suggested the economy was regaining momentum after slowing in the fourth quarter.
While manufacturing activity contracted in February, steadying new orders growth and improving inventories offered signs of stability.
Construction spending in January surged to the highest level since 2007, while strong auto sales data also boosted sentiment.
The better-than-expected data helped spark the rally in financial stocks, giving investors a greater sense of confidence and a bigger risk appetite, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“The stimulus to better stock price action is signs that the U.S. economy is, in fact, doing better,” James said.
The upbeat data comes two weeks ahead of the U.S. Federal Reserve’s rate-setting meeting. But, James does not expect the Fed to raise rates this month, even if the monthly jobs report on Friday is encouraging.
At 12:44 p.m. ET (1744 GMT), the Dow Jones industrial average was up 286.87 points, or 1.74 percent, at 16,803.37.
The S&P 500 was up 35.85 points, or 1.86 percent, at 1,968.08 and the Nasdaq Composite index was up 99.44 points, or 2.18 percent, at 4,657.39.
The S&P 500 and the Dow were on track for their best one-day percentage gain since Feb. 12. The S&P has partly recovered from a steep selloff this year and is currently above its 50-day moving average, a sign of improving sentiment.
Nine of the 10 major S&P sectors were higher, led by a 2.84 percent rise in financials. The sector is still the worst performer this year, down about 9 percent, on uncertainty about interest rates and fears of defaults by energy companies.
Morgan Stanley rose the most, up 5.1 percent, among the big banks. Goldman Sachs increased 2.7 percent, giving the biggest boost to the Dow.
The technology sector was up 2.53 percent. Apple was up 3.8 percent at $100.35, giving the biggest boost to the S&P and the Nasdaq, and the second-biggest to the Dow.
Fiat rose 6.7 percent, Ford 4.6 percent and GM 1.6 percent after strong U.S. auto sales in February defied fears of a slowdown after a record 2015.
Honeywell rose 3.5 percent to $104.91 after dropping its bid for United Technologies. United Tech was down 2.6 percent at $94.08.
Advancing issues outnumbered decliners on the NYSE by 2,425 to 588. On the Nasdaq, 1,914 issues rose and 771 fell.
The S&P 500 index showed four new 52-week highs and no new lows, while the Nasdaq recorded 30 new highs and 40 new lows. (Reporting by Abhiram Nandakumar in Bengaluru; Editing by Savio D‘Souza)