The Dow soared nearly one percent on Tuesday, as the Federal Reserve kicked off a two-day meeting to discuss the future of the central bank's bond-buying program.
"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."
All key S&P sectors were in positive territory, led by industrials and telecoms.
The two-day Fed meeting was scheduled to start later on Tuesday with a press briefing from Chairman Ben Bernanke on Wednesday. Investors around the globe 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)
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.
Overseas, the G-8 summit was wrapping up in Northern Ireland. Talks continue between the European Union and the U.S. on creation of the world's largest free-trade zone, despite France's determination to protect and exclude its cultural industries from the deal.