Stocks recovered from their lows to end higher across the board in another choppy session Monday, but investors continued to question when the Fed could begin to wind down its asset-purchase program.
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Stocks briefly took a leg lower as investors reacted a Financial Times article, released around 2pm ET, which stated that Fed Chairman Ben Bernanke is likely to signal that the central bank is "close to tapering down" its $85 billion-a-month in asset purchases during the highly-anticipated press conference on Wednesday. Major averages had been up more than 1 percent for most of the day, boosted by a global rally and amid optimism that Bernanke would provide more clarity on the central bank's easy money policy during the press conference.
Stocks eventually recovered from their lows as traders noted that the article did not contain much new information.
The Dow Jones Industrial Average rallied 109.67 points to end at 15,179.85, logging its fifth-consecutive triple-digit move. Cisco led the Dow gainers, while Verizon slipped.
The S&P 500 climbed 12.31 points to close at 1,639.04. And the Nasdaq jumped 28.58 points to finish at 3,452.13. With the session's gains, the Dow and S&P 500 poked back into positive territory for the month.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 17.
Cyclical sectors including techs, energy and financials led the S&P 500 sector leaders, while telecoms ended in the red.
"Today's driver seat continues to be speculation about what Bernanke will do, but should the yen begin to spike again, they will resume taking the wheel immediately," said Art Cashin, director of floor operations at UBS Financial Services.
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.
Meanwhile, homebuilder sentiment jumped, with the NAHB/Wells Fargo Housing index soaring to 52 in June from 44 in May. It was the first time the index rose above 50 for the first time since April 2006. Reading above 50 signal that more builders view market conditions a favorable than poor. All major homebuilders including Toll Brothers and KB Home added to gains following the report.
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 will be listening for details on when the Fed may start scaling back its $85 billion monthly bond purchases.
"There's been a tug-of-war in the market [in the last few sessions], but investors are anticipating some more clarity coming from the FOMC meeting on Wednesday," said Matt Kaufler, portfolio manager of the Federated Clover Fund. "My personal view is that the dips should be bought…as there's still room in the market left to the upside."
The Fed is also expected to provide an update on its economic projections for 2013-2015. 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 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.
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, after the tech giant's stock closed below its 50-day moving average of $434.76 last Friday, after trading on either side of the level all week.
Brent crude oil futures touched a 10-week high and U.S. oil hit a nine-month high as tensions in the Middle East escalated, but prices finished slightly lower on the day. Meanwhile, a CNBC sentiment survey found that crude prices may return to $100 a barrel this week.
And 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.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
TUESDAY: Consumer price index, housing starts, FOMC mtg begins; Earnings from Adobe Systems, La-Z-Boy
WEDNESDAY: MBA mortgage applications, oil inventories, FOMC mtg announcement & forecasts, Bernanke press conference; Earnings from FedEx, Jabil Circuit, Red Hat
THURSDAY: Jobless claims, PMI manufacturing index, existing home sales, Philadelphia Fed survey, leading indicators, natural gas inventories, Fed balance sheet/money supply, Eurogroup finance ministers meet, Best Buy shareholder mtg; Earnings from Kroger, Rite Aid, Oracle
FRIDAY: Quadruple witching; Earnings from CarMax
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