Stocks rallied Wednesday, after surprisingly strong data on U.S. and Chinese manufacturing activity overshadowed a weaker-than-expected employment report.

The Dow Jones industrial average (INDU) surged 241 points, or 2.4%, about 1-1/2 hours into the session. The S&P 500 (SPX) soared 29 points, or 2.7%. The Nasdaq (COMP) composite rallied 61 points, or 2.9%.

Stocks opened sharply higher, following a report that showed a rebound in China manufacturing. In addition, stronger-than-expected economic growth in Australia helped fuel optimism about the global economy.

But the rally really gained momentum after the Institute for Supply Management's (ISM) said its index of manufacturing activity rose to 56.3 in August. Economists were expecting the index to fall slightly from July's number of 55.5. Any number above 50 indicates growth in the sector.

Meanwhile, investors largely shrugged off a dour report from payroll processing firm ADP -- which is widely used as a leading indicator for Friday's job report from the Labor Department.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, said there has been a "bull market on negative sentiment," and that the ISM report "shocked" investors into reconsidering the bleak outlook many have for economic growth this year. However, the weak job market remains a concern he said, since consumer spending drives the bulk of the nation's economic activity -- not manufacturing.

"This market is looking for something to grab on to," he said. "And for the moment it's manufacturing."

Wednesday's advance came after stocks ended the previous session relatively unchanged, closing out a lackluster August. Stocks typically start September strong, but often end on a weak note due to end-of-the-quarter movements by mutual funds.

Economy: Payroll processing firm ADP reported that employers cut 10,000 jobs in August. Economists were expecting private sector employers to add 13,000 jobs during the month, after adding 37,000 in July.

Separately, planned job cuts plummeted to a 10-year low in August, as employers shed 34,768, down 17% from the previous month, according to outplacement firm Challenger, Gray & Christmas.

The reports come two days before the government's monthly report on jobs and unemployment. Economist expect the government to report that the economy lost 120,000 jobs in August, after employers cut payrolls by 131,000 in July. The unemployment rate is expected to edge up to 9.6% from 9.5%.

Other reports on Wednesday included construction spending, which fell 1% in July, versus a forecasted 0.7% decline.

Companies: General Motors said auto sales in August declined 25%, weaker than expected. Other automakers are due to report sales figures throughout the day, including Ford (F, Fortune 500), Toyota (TM) and Chrysler.

Shares of Burger King Holdings (BKC) jumped 14%, following a report that the fast food chain is considering a possible sale to buyout firms. The Wall Street Journal reported that that private equity firms that have expressed interest in buying Burger King include Britain's 3i Group.

Apple's (AAPL, Fortune 500) stock was up 2.3% as investors geared up for the company's annual music-themed special event. CEO Steve Jobs is expected to unveil its newest iPods and advances in the iTunes music store.

Shares of BP (BP) climbed 3.8% as the oil giant said it has agreed to sell its interests in ethylene and polyethylene production in Malaysia to government-owned Petronas for $363 million in cash.

World markets: European shares rose in afternoon trading. The FTSE 100 in Britain jumped 1.3%, the CAC 40 in France added 3% and the DAX in Germany gained 2%.

In Asia, Japan's benchmark Nikkei index gained nearly 1.2%, rebounding after hitting a 16-month low on Tuesday, and the Hang Seng in Hong Kong rose 0.4%. the Shanghai Composite fell 0.6%, despite a report that showed China's manufacturing sector bounced back in August after several months of slowing.

Currencies and commodities: The dollar fell against the euro and the British pound, but rose versus the Japanese yen.

Currency trading volume around the world has hit $4 trillion a day, a 20% jump compared to 2007, said the Bank of International Settlement.

Oil futures for October delivery rose $2.17 to $74.09 a barrel. Gold for December delivery fell $1.30 to $1,249.