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The markets zipped higher for the second day in a row Tuesday as traders grew optimistic ahead of the Fed's policy decision.
The Dow Jones Industrial Average climbed 138 points, or 0.91%, to 15318, the S&P 500 gained 12.8 points, or 0.78%, to 1652 and the Nasdaq Composite jumped 30.1 points, or 0.87%, to 3482.
The markets kicked off the week on a high note, rallying amid hopes the Federal Reserve won't trim down its bond-buying program too soon. The focus was expected to remain on the U.S. economy, with the central bank starting its two-day policy-setting meeting and two economic reports out.
The Fed's meeting concludes with a decision on Wednesday, and a press conference from Chairman Ben Bernanke. Wall Street widely expects the central bank to say it plans on continuing to buy $85 billion in bonds a month. Although, any hint that the rate will be slowed down is likely to be closely scrutinized, traders said ahead of the decision.
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"Recent bouts of positive correlation between equities, bonds and commodities suggest that the Fed’s stimulus inflated prices of financial assets, and removal of the stimulus could create a tail event in which prices of most of assets could go down," a team of analysts at J.P. Morgan Chase wrote to clients on Monday.
The Labor Department said inflation at the consumer level ticked up 0.1% in May, slightly less than the 0.2% increase economists’ expected. Excluding the food and energy components, prices were up 0.2%, matching forecasts.
Meanwhile, the Commerce Department reported U.S. housing starts increased 6.8% in May from April to an annualized 914,000-unit rate. Housing permits decreased 3.1% for the month to an annualized rate of 974,000 units.
Elsewhere, Deutsche Bank called an end to the "historic bull-run" in commodity prices, saying prices "are likely to be in subdued territory for years to come." Oil climbed 70 cents, or 0.72%, to $98.47 a barrel. Wholesale New York Harbor gasoline advanced 0.9% to $2.882 a gallon. In metals, gold dipped $15.60, or 1.1%, to $1,368 a troy ounce.
The Euro Stoxx 50 fell 0.12% to 2699, the English FTSE 100 climbed 0.73% to 6377 and the German DAX dipped 0.1% to 8208.
In Asia, the Japanese Nikkei 225 edged lower by 0.2% to 13007 and the Chinese Hang Seng was flat at 21226.