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Futures Rally After Weekly Loss, Fed Meeting in Focus

U.S. stock index futures held their sharp gains across the board Monday, looking to recover after dropping in the previous week, after a report showed growth in the New York state manufacturing sector picked back up in June and ahead of the Fed's meeting.

(Read More: Here's Bernanke: Time for the Fed to Be Specific)

On the economic front, the New York Fed's "Empire State" manufacturing index gained to 7.84 in June from minus 1.43 in May, exceeding estimates for zero. A reading above zero indicates expansion. However, the forward-looking new orders index and employment reading weakened.

The housing market index is scheduled to be reported at 10 am ET from the National Association of Home Builders/Wells Fargo. Economists polled by Reuters expect a reading of 45, versus 44 in May.

The two-day Fed meeting, ending on Wednesday with a press briefing and economic forecast from Chairman Ben Bernanke, will be the main focus for global markets this week. Investors are eager to know when the Fed may start scaling back its $85 billion monthly bond purchases, with past weeks' data inconclusive as to the extent of economic recovery.

"While policy is obviously widely expected to be left unchanged at this meeting, all eyes will turn to the post-meeting press conference where Bernanke will unveil the Fed's latest economic projections — relevant for the timing of the first rate hike — and hopefully provide greater clarity on the likely timeframe for tapering asset purchases," said Daiwa Capital Markets's Chris Scicluna in a research note on Monday.

The Fed will also provide an update on its economic projections for 2013-2015, after the meeting. The Fed's latest projections, made in March this year, saw real GDP growth at around 2.6 percent in 2013 and 3.2 percent in 2014. In terms of unemployment, the Fed projected a rate of around 7.4 percent in 2013, improving to around 6.9 percent in 2014.

"If, and how, these forecasts change could send an important signal about the Fed's near term intentions," said Scicluna. In the meantime, the Fed will purchase $4.75-$5.75 billion of 5-6-year Treasury notes on Monday.

In company news, Smithfield Foods advanced after shareholder Starboard Value said the pork processor should be broken up rather than be sold to Chinese meat company Shuanghui International. The activist shareholder, which disclosed a 5.7 percent stake in the company, said Smithfield might be worth "well in excess" of the $34 per share offered by Shuanghui if it split into hog production, pork and international units and shopped the businesses separately.

Netflix soared after the online move-streaming company struck its largest-ever original content deal with DreamWorks Animation.

Facebook edged higher after the social-networking giant sent out invitations to members of the press for a "new product" event this Thursday.

Investors will also be focused on Apple stock, after the tech giant closed below its 50-day moving average of $434.76 last Friday, after trading on either side of the level all week.

(Read More: Apple Received up to 5,000 US Data Requests in 6 Months)

In other news, U.S. crude oil prices may return to $100 per barrel this week, according to a CNBC sentiment survey, after prices rebounded to a nine-month high on Friday.

JPMorgan strategists said in a note that investors are ignoring the possibility of a price shock due to Mideast tensions that could sent brent crude prices to $115 a barrel this year.

(Read More: $100 a Barrel Looms for US Crude This Week)

President Barack Obama will meet with leaders of the world's richest countries in Northern Ireland on Monday, for the annual meeting of the Group of 8 (G8).

(Read More: Obama Faces Tough Sell on Europe Austerity at G8)

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