Update by iterating table in batches faster than whole table in PostgreSQL
I'll try my best to answer your question in brief, but since I'm not really aware of your level of comfort with PostgreSQL, and I don't have a lot of time to go into an in-depth explanation anyways, I'll keep the answers simple, and you can ask for clarification if you'd like more info.

1) Why is it faster in batches?

Due to the structure of PostgreSQL's write ahead log, the amount of shared buffer space in RAM, and the attempt to perform the entire UPDATE in a single transaction, my guess is that you simply don't have enough computing resources to efficiently handle the update to nearly a million records in a single transaction.

PostgreSQL has a well-built concurrency control system, essentially meaning that it has to keep the old copies of your pre-UPDATE rows available during your UPDATE operation.  This is so that, in case another client tries to access these rows while you're updating, in case the update fails, or in case you cancel the update, you don't lose the old information.

If you perform a large enough UPDATE, PostgreSQL will load pages into memory and modify them, but will eventually run out of memory to work with, so it is forced to immediately copy these pages temporarily to disk if it wants to be able to load further pages and continue the transaction.

Rather than being able to amortize the disk writes over a period of time, you've just forced your database into a bottleneck.

2) Scripting the updates

You absolutely can script the updates, by creating a function in PL/pgSQL.  There's a lot to learn about PL/pgSQL, including a lot I probably don't know, but generally speaking, you could do something like this

CREATE OR REPLACE FUNCTION mini_batch_update()
  RETURNS void AS
$BODY$
DECLARE

id_val integer;

BEGIN

  FOR id_val IN 0..2000
  LOOP

  **UPDATE GOES HERE**
  WHERE id &gt; (500 * id_val) AND id &lt;= 500 * (id_val + 1);

  END LOOP;


END
$BODY$
LANGUAGE plpgsql;


I didn't take a lot of time to make this batch function in tip-top form; what I mean is that I simply hard-coded several of the numerical values for simplicity's sake.  In your case, you may want to get more detailed and include: 1) Something that checks for the maximum id value so that you set your bounds appropriately, and 2) even though I  hard-coded batches of 500, you could easily make this a function input parameter.

Sorry I don't have time to test this or make sure it really works well.  Good luck!