Fed asset purchases drive down interest rates to spur recovery, boosting equities in the process, and talk of their dismantling dampened stock prices in the recent past by fanning uncertainty over how equities will perform without a monetary crutch.
At the close of U.S. trading, the Dow Jones Industrial Average rose 0.82%, the S&P 500 index rose 0.63%, while the Nasdaq Composite index rose 0.71%.
The Federal Reserve will hold a monetary policy meeting on Dec. 17-18, and surprisingly strong retail sales, consumer sentiment, employment and other indicators had many betting the U.S. central bank will announce plans to trim its asset-purchasing plan then or shortly afterwards, which watered down stock prices in recent sessions.
By Monday, investors came back to equities markets on sentiments that lackluster data released earlier may prompt the Fed to wait until early 2014 to begin tapering bond purchases.
London-based market research group Markit reported earlier that its preliminary U.S. manufacturing purchasing managers' index declined to a seasonally adjusted 54.4 in December from a final reading of 54.7 in November.
Analysts were expecting the index to rise to 54.9 this month.
The Federal Reserve Bank of New York reported earlier that its Empire State manufacturing index came in at 0.98 in December compared to November's -2.21 reading, though analysts were expecting the index to rise to 4.75.
Separately, the Federal Reserve reported that U.S. industrial production advanced 1.1% in November after having edged up 0.1% in October, beating consensus forecasts for a 0.5% November reading.
Stocks also rose on sentiments that should the Fed decide to scale back bond purchases this week, bond purchases will drop by a small amount, while any plans to outright tighten policy remain far beyond the horizon.
Elsewhere, Exxon Mobil shot up on news that Goldman Sachs upgraded the company's shares to buy from neutral.
Herbalife shares soared after Billionaire investor Carl Icahn told CNBC on Monday that he believes the company is undervalued and added he was satisfied with re-audited results.
Leading Dow Jones Industrial Average performers included IBM, up 2.95%, Cisco, up 2.20%, and Exxon Mobil, up 2.07%.
The Dow Jones Industrial Average's worst performers included Procter & Gamble, down 0.83%, Merck, down 0.61%, and Wal-Mart Stores, down 0.45%.
European indices, meanwhile, finished higher.
After the close of European trade, the EURO STOXX 50 rose 1.83%, France's CAC 40 rose 1.48%, while Germany's DAX 30 rose 1.74%. Meanwhile, in the U.K. the FTSE 100 finished up 1.28%.
On Tuesday, the U.S. is to release data on consumer inflation and its current account balance.
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