Caterpillar Inc. (CAT) said Monday it will raise prices on most of its construction machinery by up to 2% beginning in January.

Caterpillar, the world's largest producer of bulldozers, excavators and other construction equipment by sales, didn't cite specific reasons for the increase in its announcement, saying only that the rise was caused by "current industry factors and expected general economic conditions."

Caterpillar anticipates global economic growth of 2.2% growth in 2010, following a forecast decline of 2.2% in global gross domestic product in 2009. Demand for construction equipment has fallen sharply this year, prompting Caterpillar to lay off tens of thousands of workers and idle assembly plants to lower its fixed costs.

But material costs, particularly for steel, have remained stubbornly high compared with previous global economic downturns. By raising prices on machinery Caterpillar will be able to offset rising material costs without eroding profit.

Industry experts said the Caterpillar's move confirms the company has sufficiently lowered its inventories of unsold equipment to allow higher prices next year.

"This is definitely great news," said Heiko Ihle, an analysts for Gabelli & Co. "The story has been about how much do we have to discount stuff to get it off the floor."

Investors reacted favorably to the increase. Caterpillar's stock was recently trading up 2.7% at $50.13 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com