Stocks added to their gains in the final minutes of trading to close higher on Monday, with the Nasdaq reversing its losses and all key S&P sectors in positive territory.
Stocks were mixed for most of the session in choppy trading as investors weighed a pair of weaker-than-expected economic reports against potential quantitative-easing moves by the Fed.
The Dow Jones Industrial Average rallied more than 100 points, led by Merck and Intel to close at 15,254.03, after plunging more than 200 points in Friday's session. Bank of America and JPMorgan led the laggards.
The S&P 500 also gained. The Nasdaq, which had been in the red for most of the session, reversed its losses. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 16.
All key S&P sectors turned higher, led by consumer staples and energy.
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Since 2000, June is tied with September as the worst month of the year for the Dow, down an average of 1.75 percent. June is the second worst month for the S&P 500, down approximately 1.4 percent.
"There's been lots of slowing signs in the economy, but how that relates to the market we don't know because the Fed's distorting everything," said Joe Saluzzi, co-manager of trading at Themis Trading. "Investors also have to be careful—the bullish argument is starting to weaken and this is an unprecedented market. This rally is not built on organic or fundamental growth."
"Given how successful QE has been in keeping interest rates low and encouraging investors around the world over to increase portfolio risk in search of higher, returns, it's logical the threat of declining stimulus would induce knee-jerk profit taking," wrote Alec Young, global equity strategist at S&P Capital IQ.
On the economic front, manufacturing activity unexpectedly contracted in May for the first time in six months as new orders slipped and there was less demand for exports, according to the Institute for Supply Management's index of national factory activity. Adding to woes, construction spending rose less than expected in April, according to the Commerce Department.
Earlier, a report from financial data firm Markit's final PMI index showed the pace of manufacturing activity ticked slightly higher in May, thought the rate was still muted.
Investors will also be closely watching the monthly government employment report at the end of the week. The report is expected to show that non-farm payrolls climbed 165,000 in May, according to the latest Reuters poll, with the unemployment rate unchanged at 7.5 percent.
Japan's Nikkei index tumbled more than 3 percent, hitting a new six-week low, while worries of a slowdown in China grew after weak factory gate figures for May. European shares also closed in negative territory, despite better-than-expected manufacturing data from key euro zone countries.
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Intel rallied after FBR raised its rating on the tech company to "outperform." Separately, Samsung Electronics said it will use Intel processors to power a new version of one of its Android tablets.
Zynga, the maker of online games like "Farmville," said it will lay off 520 employees, or 18 percent of its workforce, in an effort to reduce costs and restructure its business. Its shares tumbled 12 percent by the end of the day.
Meanwhile, a fresh report showed that nearly two-thirds of Americans who currently lack health insurance don't know yet if they will purchase that coverage by the Jan. 1 deadline, according to findings from InsuranceQuotes.com. Major health insurance companies including Wellpoint, Aetna and UnitedHealth ticked higher.