US STOCKS-Dow eyes close above 12,000 as Wall St rallies

* UPS, Pfizer climb on earnings

* U.S. factory activity rises in Jan, fastest in 7 years

* Egypt ETF on the rise for second day

* Stocks up: S&P 1.6 pct, Dow 1.2 pct, Nasdaq 2 pct

* For up-to-the-minute market news see [STXNEWS/US] (Updates to late afternoon)

By Edward Krudy

NEW YORK, Feb 1 (Reuters) - U.S. stocks climbed on Tuesday on signs U.S. manufacturing surged and Pfizer Inc and UPS Inc posted strong results, sending indexes above key levels as market momentum strengthened.

A strong corporate picture and an improving economy have taken investors' minds off the political turmoil in Egypt. Investors capitalized on last week's pullback, sending the Dow over the psychologically important 12,000.

Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St. Louis, said the biggest pullback in six months on Friday had lured investors. "There was an opportunity for that money that had missed out to jump in," he said.

The Dow Jones industrial average <.DJI> gained 140.36 points, or 1.18 percent, to 12,032.29. The Standard & Poor's 500 Index <.SPX> gained 20.93 points, or 1.63 percent, to 1,307.05. The Nasdaq Composite Index <.IXIC> gained 52.56 points, or 1.95 percent, to 2,752.64.

Pfizer Inc shares rose 5.3 percent to $19.19 after the Dow component's income and revenue topped estimates. The drugmaker also announced a new share-repurchase program of up to $5 billion of its common stock.

United Parcel Service Inc, seen as an economic bellwether, rose 4.2 percent to $74.64 after profit at the world's largest package deliverer beat estimates and it forecast record-high earnings in 2011. For details, see [ID:nN27265145]

Signaling improvement in economic growth, the U.S. manufacturing sector expanded at its fastest pace in nearly seven years in January, according to the Institute for Supply Management. The index's employment component rose to is highest since 1973. [ID:nN01292459]

"Manufacturing seems to clearly be an area of strength, and it is the combination of manufacturing picking up and the consumer picking up, that's most of the economy." said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

Investors were less jittery about the turmoil in Egypt even as mass protests calling for the ouster of President Hosni Mubarak continued. The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, fell nearly 10 percent, its biggest drop in over two months

Trading volume was 5.9 billion shares by early afternoon trade, with advancing stocks beating declining ones by a ratio of around 5 to 1 on the New York Stock Exchange.

Oil prices , which had risen in the past couple of days, fell 0.9 percent to $91.38 a barrel, suggesting less worry about supply problems in the Middle East.

U.S. investors also continued to search for Egyptian markets exposure. The Van Eck Market Vectors Egypt Index exchange-trade fund was up 2.7 percent after a 7.9 percent jump Monday. The ETF is one of the main instruments for U.S. investors seeking exposure to Egyptian markets.

Supporting the Nasdaq, Baidu shares gained 9.3 percent to $118.69 after the company beat fourth-quarter estimates and painted a bright near-term outlook. [ID:nN31251723] (Reporting by Edward Krudy, Additional reporting by Caroline Valetkevitch, Editing by Kenneth Barry)