Stocks rallied to finish near session highs Tuesday, with the Dow soaring nearly 150 points, as members of the Federal Reserve kicked off their two-day meeting to discuss the future of the central bank's bond-buying program.
(Read More: After-Hours Buzz: ADBE, LZB & More)
"All eyes are on the Fed," said John Fox, co-manager of the FAM Value Fund. "Economic news has been fine and continues the trend that we've been on, but tomorrow's going to have much bigger impact on what happens this week…but with inflation low and the job picture not satisfactory yet, I don't see a reason for the Fed to change anything."
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed below 17.
All key S&P sectors were in positive territory, led by industrials and telecoms.
The Federal Reserve is expected to release a policy statement at the end of its two-day meeting and Chairman Ben Bernanke is scheduled to hold a press conference shortly after the announcement on Wednesday. Investors around the world will listen with acute interest for details on when the Fed may start scaling back its $85 billion monthly bond purchases.
(Read More: Fed Meets as Faith in Its Bond Program Wanes)
Major averages have been volatile since Bernanke said last month the Fed could begin to pare back its stimulus efforts if the U.S. economy gains momentum.
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.
U.S. stocks took a knock on Monday afternoon when the Financial Times reported that Bernanke is likely to signal the central bank is "close to tapering down" its $85 billion-a-month asset purchases. Stocks eventually recovered from lows when traders noted the article did not contain much new information.
(Read More: Markets More Doubtful of Fed Easing Benefits: Survey)
Among techs, Dell rose after billionaire investor Carl Icahn sent a letter to Dell holders proposing the tech giant commence a tender offer for 1.1 billion shares at $14 a share. Icahn also announced a purchase of 72 million Dell shares fro Southeastern Asset Management.
Hewlett-Packard climbed to hit a new 52-week high after the tech company said that Todd Bradley, the head of its largest unit, printing and personal computers, will move to a new role heading up HP's Strategic Growth Initiatives.
Sony rallied after U.S. hedge fund Third Point raised its stake in the Japanese electronics giant to 70 million shares. Third Point CEO Daniel Loeb also urged Sony to spin-off its entertainment division, and offered to sit on Sony's Board of Directors.
(Read More: How You Should Position for Rising Interest Rates)
On the economic front, housing starts rose 6.8 percent in May to a seasonally adjusted annual rate of 914,000 units, according to the Commerce Department, missing expectations for a 950,000-unit rate.
Meanwhile, consumer prices edged up 0.1 percent in May, according to the Labor Department. Consumer prices outside of food and energy rose 0.2 percent last month, just above the pace clocked in April.
Outside of the U.S., the G-8 summit will wrap up in Northern Ireland. Talks continue between the European Union and the U.S. regarding the creation of the world's largest free-trade zone, despite France's determination to protect and exclude its cultural industries from the deal.
(Read More: EU, US Launch Trade Talks, France Stiff-Necked)
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
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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