Market participants had viewed Summers as more of an inflation hawk over other frontrunners, especially current Fed Vice Chair Janet Yellen, whom markets feel will keep policy loose to prioritize job creation via stock-market gains over keeping inflation in check if appointed.
At the close of U.S. trading, the Dow Jones Industrial Average finished up 0.77%, the S&P 500 index rose 0.57%, while the Nasdaq Composite index fell 0.12%.
Summers, widely considered to be President Barack Obama's top choice as head of the Fed, bowed out of the race over the weekend, which dampened expectations for a quicker end to monetary stimulus programs.
Investors feel Yellen will stick with Bernanke's loose policies including the Fed's USD85 billion in monthly asset purchases, a stimulus tool known as quantitative easing that drives down interest rates and sends stocks rising to spur job creation and recovery.
Elsewhere, the Fed will open a two-day monetary policy meeting on Tuesday, with many betting that even if the Fed does announce plans to scale back stimulus measures, it will do so at a very gradual pace, especially in wake of lackluster economic indicators, and continue boosting stocks with stimulus programs.
The Federal Reserve Bank of New York reported earlier that its Empire State manufacturing index fell to a four-month low of 6.29 in September from 8.24 in August, defying analysts' calls for the index to rise to 9.20.
Separately, the Federal Reserve reported that U.S. industrial production advanced 0.4% in August after having been unchanged in July, in line with expectations.
Leading Dow Jones Industrial Average performers included Boeing, up 3.90%, General Electric, up 1.56%, and Procter & Gamble, up 1.38%.
The Dow Jones Industrial Average's worst performers included Hewlett-Packard, down 1.45%, Microsoft, down 0.73, and Intel, down 0.26%.
European indices, meanwhile, finished higher.
After the close of European trade, the EURO STOXX 50 rose 0.90%, France's CAC 40 rose 0.92%, while Germany's DAX 30 finished rose 1.22%. Meanwhile, in the U.K. the FTSE 100 finished up 0.59%.
On Tuesday, the U.S. is to release data on consumer price inflation, though many investors will remain camped on the sidelines to await the Fed's decision on monetary policy on Wednesday.
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