U.S. stocks closed more than 1 percent higher Tuesday as investors eyed some of the final data reports leading into the Federal Reserve's key meeting. (Tweet This)
"I think the market's just kind of drifting around a little bit," said JJ Kinahan, chief strategist at TD Ameritrade. "The volume's so light, I think it's the path of least resistance. There's less selling pressure on a given day because of the Fed coming out."
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Stocks extended gains in afternoon trade, while Treasury yields spiked and the dollar held higher.
"In today's market it's hard to generalize because there are a fair amount of crosscurrents," said Paul Nolte, portfolio manager at Kingsview Asset Management. He's watching to see if the S&P 500 can hold above 2,000 in the near term.
The Dow Jones industrial average closed up about 230 points, or 1.4 percent, after earlier gaining as much as 273 points. The blue chip index held out of correction territory, within 10 percent of its 52-week high.
The S&P 500 and Nasdaq composite each gained more than 1 percent, both within 8 percent of their 52-week highs. In early trade, the Nasdaq dipped into negative territory.
The Russell 2000 closed up 1.06 percent, failing to hold out of correction mode.
"In a market that's been meandering this week in a wait-and-see mode, the positives in the market are coming from the commodity complex," said Art Hogan, chief market strategist at Wunderlich Securities. From the data, "your reading on the U.S. economy continues to be net positive."
Key morning reports on retail sales and industrial production missed expectations slightly.
"It's good economic news without forcing the Fed's hand at the end of this week," said Eric Lascelles, chief economist at RBC Global Asset Management.
"None look great in terms of their headline but the revisions (are positive)," he said.
"There's a big camp out there that (believes) any negative news is going to keep the Fed on hold. They focus on the near-term rather than the big picture," said Robert Pavlik, chief market strategist at Boston Private Wealth. He leans towards a hike this week.
Crude oil futures settled up 1.3 percent at $44.59 a barrel on the New York Mercantile Exchange. Earlier, U.S. crude oil pared gains after the White House said it does not support a move by the U.S. House of Representatives to repeal a 40-year-old ban on exports of crude oil.
The energy sector jumped more than 1 percent following the gains in oil.
"Oil prices are a little higher now so we'll get some help from there," said Peter Cardillo, chief market economist at Rockwell Global Capital.
As traders awaited a possibly historic decision on short-term interest rates, significant market moves were not expected ahead of the Fed meeting.
"Everything is coiling and waiting for Thursday," said John Caruso, senior market strategist at RJO Futures.
"The trading ranges are shrinking day by day as we move into Thursday," he said. "There's a lot of big cash positions out there."
The Dow closed down 62 points on Monday to post its narrowest intraday trading range since Aug. 18.
S&P 500 year-to-date (as of close Tuesday)
The Federal Open Market Committee could raise short-term interest rates for the first time in more than nine years at its two-day meeting, which begins Wednesday and culminates in a statement release and press conference Thursday.
Many economists see enough support from labor market conditions for the Fed to hike in September, while financial markets price in a small chance of a move.
Read MoreHow to trade the Fed's meeting this week
Treasury yields jumped, with the 10-year yield at 2.28 percent and the hitting a four-year high of 0.80 percent.
I "wouldn't read too much into that," said Gregory Peters, senior portfolio manager at Prudential Fixed Income. "I would be careful leading into the meeting to read too much into what the market is doing (right now)."
Analysts also noted positioning ahead of Thursday's decision.
"Today's actually the first day where we've seen a decent move in the 10-year and 30-year," said Kinahan, noting fed futures pricing in a low chance of a hike Thursday. "It's a big waiting game and I think the more important thing is, how do we want to be afterwards."
The dollar traded higher against major world currencies, with the euro dipping below $1.13 and the yen near 120.5 yen against the greenback.
showed an increase of 0.2 percent, missing expectations of a 0.3 percent gain. Ex-autos, the figure increased 0.1 percent. July retail sales were revised up to 0.7 percent from 0.6 percent.
"Today's (retail sales) release will have little impact on the FOMC's policy meeting. It is roughly in line with expectations, confirming that consumer spending is increasing at a moderate pace," PNC Chief Economist Stuart Hoffman said in a note. "The FOMC is more likely than not to raise the federal funds rate target 25 basis points to 0.25 to 0.50 percent on Thursday, but the committee could decide to wait until later in the year to increase rates."
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In other economic news, gained 0.1 percent. data showed a decline of 0.4 percent, worse than the expected 0.2 percent drop.
The came in at negative 14.7 for September, versus August's read of negative 14.9.
Stock index futures held higher, with the Dow futures up about 40 points, after initially fluctuating between slight gains and losses following the data releases.
Major U.S. Indexes
Recent market volatility and concerns about the impact of weakness in China's economy — the second largest in the world — have tempered market expectations for a near-term rate rise.
In Asia, the Bank of Japan held monetary policy steady at the end of a two-day policy and remained optimistic about the domestic economy, while noting that slowing demand from emerging markets was hurting Japanese exports. The Shanghai Composite closed down 3.55 percent as concerns about China's economic outlook continued to take a toll.
European stock markets reversed losses to close higher, with the STOXX Europe 600 up nearly 1 percent.
Read More Early movers: UBS, FIT, LNG, FCAU, GM, F, REITs & more
The Dow Jones Industrial Average closed up 228.89 points, or 1.40 percent, at 16,599.85, with Caterpillar leading advancers and Walt Disney the only decliner.
The Dow transports closed up 1.85 percent, with UPS jumping 3.6 percent to lead nearly all constituents higher. Alaska Air was the greatest laggard.
The closed up 25.06 points, or 1.28 percent, at 1,978.09, with industrials leading all 10 sectors higher.
The Nasdaq closed up 54.76 points, or 1.14 percent, at 4,860.52.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 22.5.
About seven stocks advanced for every three decliners on the New York Stock Exchange, with an exchange volume of 778 million and a composite volume of 3.2 billion in the close.
Gold futures settled down $5.00 at $1,102.60 an ounce.
On tap this week:
Wednesday
FOMC meeting begins
8:30 a.m.: CPI
10 a.m.: NAHB survey
4 p.m.: TIC data
Thursday
Final day of FOMC meeting
8:30 a.m.: Initial claims
8:30 a.m.: Housing starts
8:30 a.m.: Current account
10 a.m.: Philadelphia Fed survey
2 p.m.: Fed statement
2:30 p.m.: Fed Chair Janet Yellen news briefing
Friday
10 a.m.: Leading indicators
Saturday
1:30 p.m.: San Francisco Fed President John Williams on the economic outlook
3:30 p.m.: St. Louis Fed President James Bullard on the economy and monetary policy
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