U.S. stocks closed more than 1 percent higher on Monday as investors cheered a pause in the dollar rally and eyed renewed weakness in oil prices ahead of Wednesday's key Fed meeting.
"The markets are focused on currencies. The dollar is down against the euro," said Peter Boockvar, chief market analyst at The Lindsey Group. "Markets are just awaiting what we see on Wednesday."
The U.S. dollar index fell nearly 1 percent on Monday to trade below 100. The index gained nearly 3 percent in the last week as the euro dipped to 12-year lows below $1.05.
The Dow Jones industrial average gained more than 225 points, with all the major indices advancing to hold in the black for the year.
Still, "with all these ups and downs we've basically gone nowhere year-to-date," said Nick Raich, CEO of The Earnings Scout. "Markets first have to reset to the lower (earnings) growth."
The Dow transports closed up 1.69 percent with JetBlue leading gains as oil prices fell.
Crude oil settled down 96 cents at $43.88 a barrel, its lowest in six years. Brent crude hovered above $53 a barrel.
"I think oil clearly added to some of the volatility last week," said Randy Frederick, managing director of trading and derivatives at Charles Schwab. Today's focus is still on the dollar and oil—tomorrow it's housing. "The big one for the week is the Fed meeting and whether they take out 'patient.'"
"Seems raising interest rates would further strengthen the dollar," he said. "What's happened since (the strong jobs report) puts us in a state of 'we don't know' (about Fed action)."
Frederick added that if oil continues to hold lower, the S&P 500 could fall to 2000, less than 100 points below where it is now.
The Federal Open Market Committee holds its March meeting over the next two days, with the release of its statement on Wednesday. Investors are watching to see if the key word "patient" remains in the statement, an indication of when short-term interest rates might go up.
"This is a week most concerned that there's strong enough economic data for the Fed to remove 'patient,'" said Art Hogan, chief market strategist at Wunderlich Securities. "The entire world will breathe a sight of relief if they do" because it gives the Fed the option of raising interest rates, or not.
"I think we're very well telegraphing they're taking out 'patient' and putting in something like 'data dependent,'" said Eric Stein, co-director of global income at Eaton Vance Management. "Not only gives them a lot of flexibility but I think (it) is appropriate."
Central bank policies continue to diverge from the United States', with China's Premier Li Keqiang suggesting more stimulus in the region and the launch of quantitative easing in the European Union last week. Shanghai equities surged to five-year highs and the DAX hit a record on Monday.