Stocks added to their gains in the final minutes of trading to close near session highs Monday, with the Nasdaq reversing its losses and all key S&P sectors in positive territory.
Stocks were mixed for most of the session in choppy trading as investors weighed a pair of weaker-than-expected economic reports against potential quantitative-easing moves by the Fed.
The Dow Jones Industrial Average soared 138.46 points, to end at 15,254.03, propelled by Merck and Intel, logging its best one-day session in a month.
The S&P 500 climbed 9.68 points, to close at 1,640.42. The Nasdaq, rose 9.45 points, to finish at 3,465.37, after being in the red for most of the session. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 16.
All key S&P sectors turned higher, led by consumer staples and energy.
(Read More: 'Underlying Bullish Story' for Stocks: Strategist)
Since 2000, June is tied with September as the worst month of the year for the Dow, down an average of 1.75 percent. June is the second worst month for the S&P 500, down approximately 1.4 percent.
"There's been lots of slowing signs in the economy, but how that relates to the market we don't know because the Fed's distorting everything," said Joe Saluzzi, co-manager of trading at Themis Trading. "Investors also have to be careful—the bullish argument is starting to weaken and this is an unprecedented market. This rally is not built on organic or fundamental growth."
"Given how successful QE has been in keeping interest rates low and encouraging investors around the world over to increase portfolio risk in search of higher, returns, it's logical the threat of declining stimulus would induce knee-jerk profit taking," wrote Alec Young, global equity strategist at S&P Capital IQ.
On the economic front, manufacturing activity unexpectedly contracted in May for the first time in six months as new orders slipped and there was less demand for exports, according to the Institute for Supply Management's index of national factory activity. Adding to woes, construction spending rose less than expected in April, according to the Commerce Department.
Earlier, a report from financial data firm Markit's final PMI index showed the pace of manufacturing activity ticked slightly higher in May, thought the rate was still muted.
Investors will also be closely watching the monthly government employment report at the end of the week. The report is expected to show that non-farm payrolls climbed 165,000 in May, according to the latest Reuters poll, with the unemployment rate unchanged at 7.5 percent.
Japan's Nikkei index tumbled more than 3 percent, hitting a new six-week low, while worries of a slowdown in China grew after weak factory gate figures for May. European shares also closed in negative territory, despite better-than-expected manufacturing data from key euro zone countries.
(Read More: Is Another Turbulent Month in Store for Markets?)
Intel rallied after FBR raised its rating on the tech company to "outperform." Separately, Samsung Electronics said it will use Intel processors to power a new version of one of its Android tablets.
Zynga said it will lay off 520 employees, or 18 percent of its workforce, in an effort to reduce costs and restructure its business. Shares tumbled more than 12 percent after being temporarily halted twice.
Also among techs, Apple is scheduled to go to trial over allegations that the tech giant conspired with publishers to raise the price of e-books. Separately, the Wall Street Journal reported Apple is getting closer to debuting a streaming music radio service. Shares of Pandora tumbled.
(Read More: The Trade: The Apple Bottom Is In as Cook Steps Up)
F5 Networks slumped to lead the S&P 500 laggards after Morgan Stanley cut its rating on the networking appliances company to "equalweight" from "overweight."
General Motors gained after the automaker said its May auto sales were the strongest since September 2008, amid strong demand for pickup trucks, small gars and SUVs. Rival Ford also advanced after the company posted sales that gained 14 percent in the same period.
Merck soared after researchers said the pharmaceutical giant's drug designed to unmask tumor cells and mobilize the immune system to fight cancer helped shrink tumors in 38 percent of patients with advanced melanoma in an early-stage study.
Meanwhile, a fresh report showed that nearly two-thirds of Americans who currently lack health insurance don't know yet if they will purchase that coverage by the Jan. 1 deadline, according to findings from InsuranceQuotes.com. Major health insurance companies including Wellpoint, Aetna and UnitedHealth ticked higher.
Cracker Barrel rose after the restaurant chain topped earnings expectations and increased its dividend.
—By CNBC's JeeYeon Park. Follow JeeYeon on Twitter: @JeeYeonParkCNBC
What's Happening This Week:
TUESDAY: International trade, Fed's George speaks, Tesla shareholder mtg; Earnings from Dollar General
WEDNESDAY: MBA mortgage applications, ADP employment report, productivity & costs, factory orders, ISM non-mfg index, oil inventories, Beige Book, Las Vegas Sands shareholder mtg, Under Armour investor day, Yelp shareholder mtg; Earnings from Hovnanian, VeriFone
THURSDAY: Bank of England announcement, Challenger job-cut report, ECB announcement, jobless claims, quarterly services survey, natural gas inventories, Fed balance sheet/money supply, chain store sales, Wal-Mart shareholder mtg, Google shareholder mtg, GM annual mtg; Earnings from Ann, JM Smucker, Cooper Cos., Vail Resorts
FRIDAY: Employment situation, consumer credit
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