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Manufacturing in the United States expanded in November for a fourth consecutive month, propelled by gains in orders and exports that signal growth will be sustained.

The Institute for Supply Management's manufacturing index fell to 53.6, lower than forecast, from October’s three-year high of 55.7, according to the Tempe, Ariz.-based group. Readings above 50 signal expansion. Another report showed home sales will probably rise further.

Stocks extended gains, sparked by a report showing factory output in China rose at the fastest pace in five years, lifting earnings prospects at U.S. exporters including Caterpillar Inc. (NYSE: CAT). Growing demand from overseas and lean inventories may keep American assembly lines running into 2010, when government stimulus efforts begin to wane.

“The overall economic recovery is in place,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, N.C., who correctly forecast the drop in the ISM index. “Large manufacturing firms are probably picking up a lot of the stimulus infrastructure spending and are benefiting from global growth and the weaker dollar.”

The Standard & Poor's 500 Index gained 1.2 percent to close at 1,108.86. Global shares rallied on news about China and after Dubai World said it needed to restructure less than half of its debt.

General Motors Co., Toyota Motor Corp. (NYSE: TM), Ford Motor Co. (NYSE: F) and Chrysler Group LLC posted November U.S. auto sales that beat analysts' estimates. Domestic vehicle sales rose to an 8.36 million annual rate in November from a 7.94 million pace a month earlier. Total sales increased to a 10.92 million rate from 10.45 million.

The ISM index was projected to drop to 55, according to the median forecast of 76 economists surveyed by Bloomberg News. Estimates ranged from 53.5 to 57. Manufacturing accounts for about 12 percent of the economy.

The number of contracts to buy previously owned homes unexpectedly rose in October as consumers rushed to take advantage of a tax credit that was due to expire, another report Tuesday showed.

The index of signed purchase agreements, or pending home sales, climbed 3.7 percent to 114.1 after increasing 6 percent in September, the National Association of Realtors said. The ninth consecutive gain compares with the median forecast of a decline in a Bloomberg News survey of economists.

The ISM's new orders index improved to 60.3 from 58.5, while a gauge of export demand increased to 56, the highest level since August 2008.

A decrease in the inventory component shaved more than a point from the overall ISM index, making the decline less worrisome, said economists at Morgan Stanley (NYSE: MS) in New York.

“Cleary, more rapid liquidation of inventories now means better growth in activity going forward,” Morgan Stanley's Ted Wieseman said in a note to clients. “This future upside in output from the inventory drawdowns already seems to be coming through in the strength in orders.”

A rebound in global growth and a 16 percent drop in the dollar since March against a basket of six major trading partners is helping spur demand from abroad. Exports climbed 9.4 percent in the five months through September, the biggest such gain since comparable records began in 1992, according to figures from the Commerce Department.

Caterpillar's Chief Executive Officer Jim Owens said the global economic recovery will be led by emerging markets.

“I think we are going to have a global recovery that's somewhat led by the emerging market theater and the commodity sectors,” Owens said Nov. 24 in an interview on CNBC.

The United States needs to focus on export competitiveness and opening markets, Owens said. Peoria, Ill.-based Caterpillar sells more than half of its products outside of the United States.

Economists surveyed by Bloomberg at the beginning of November forecast the economy would grow at a 3 percent pace in the last three months of the year, following a 2.8 percent pace in the third quarter.

President Barack Obama's renewal last month of tax credits for first-time homebuyers should spur demand for homes and construction into early next year, economists said. Obama on Nov. 6 signed a bill extending an $8,000 tax credit for first-time buyers until April 30 from Nov. 30, and expanded it to include some current owners.

“The tax credit is helping unleash pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future,” Lawrence Yun, the real estate agents group's chief economist, said in a statement. Yun also said sales may see a “temporary decline” because of the timing of the extension.

Government spending on infrastructure projects may bolster other parts of the building industry next year.

Construction spending in the United States was unchanged in October after declining five straight months, depressed by a drop in commercial projects as office and retail vacancies climbed, a report from the Commerce Department Tuesday also showed. Outlays declined on office buildings and commercial projects, while homebuilding increased.

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