NEW YORK (CNN/Money) -
Stocks rallied Monday, bouncing back after last week's declines, as investors geared up for Tuesday's Federal Reserve meeting.
The Nasdaq composite (up 18.50 to 1938.72, Charts) jumped about 1 percent, while the Standard & Poor's 500 (up 10.10 to 1117.49, Charts) index and the Dow Jones industrial average (up 88.40 to 10314.00, Charts) each rose about 0.9 percent. All three gauges had traded a bit higher in the late morning and lower in the late afternoon.
Worries about how rising interest rates will affect the economic recovery and corporate profits punished stock prices last week. Those same concerns have kept the market rangebound for six weeks.
"This is a bit of a relief rally based on the fairly sharp selloff last week," Joseph Battipaglia, chief stock strategist at Ryan, Beck & Co., said of Monday's rally.
"But if you step back, it seems to me that we're still in the trading range we've been in for some time. There's still the push and pull between rising earnings and rising interest rates."
Market watchers say investors are starting to accept that rates are bound to rise this summer. The combination of that acceptance and some short-covering after last week's fall enabled stock markets to rise Monday.
The rate debate will be front-and-center again Tuesday, when Federal Reserve policy-makers meet to discuss the economy and monetary policy.
The central bank probably won't to raise short-term rates from 40-year lows but is expected to set the stage for future rate hikes by changing the language in its statement. The morning's economic news was mostly upbeat, in tune with other recent economic reports showing new momentum in the recovery.
"The best thing I can say with today's rally is that the breadth was improved, with more stocks participating," said Brian Bensch, investment manager at Melhado, Flynn & Associates. "I think we have the potential to see a rally of up to 3 percent in the short term, but there are a lot of overlays."
Bensch says that the S&P 500 is continuing to struggle with the 1,140-1,150 level, and that it needs to get past this before it can move higher. The verbiage in the Federal Reserve's statement Tuesday, as well as Friday's monthly employment report will determine the market's direction in the next week or so, he added.
Ahead of that, investors will take in the March factory orders report just after the start of trade Tuesday. Factory orders are expected to have risen 2.4 percent after having risen 0.3 percent in February.
The April employment report, due before the start of trade Friday, is expected to show that employers added 165,000 jobs to their payrolls last month, according to Briefing.com estimates, after adding 308,000 the previous month. The unemployment rate is thought to have held steady at 5.7 percent, consistent with last month.
What moved?
A number of technology stocks that tumbled last week led Monday's rally, though by late afternoon they had pulled back from their morning highs.
Among the gainers on the Nasdaq, Cisco Systems (CSCO: up $0.20 to $21.12, Research, Estimates) rose 1 percent, JDS Uniphase (JDSU: unchanged at $3.09, Research, Estimates) gained 2 percent and Microsoft (MSFT: up $0.20 to $26.35, Research, Estimates) gained 0.8 percent.
Adobe Systems (ADBE: up $2.50 to $44.00, Research, Estimates) jumped almost 6 percent after the software maker boosted its quarterly sales and earnings forecast because of better-than-expected demand for its products.
The Nasdaq had been even higher in the morning before the semiconductor sector, which is often the Nasdaq's leader, retreated.
The Semiconductor Industry Association (SIA) said Monday that global chip sales rallied 32.3 percent in March from the year-earlier period.
Intel (INTC: up $0.30 to $26.04, Research, Estimates) and other techs had gained on the news but struggled to retain those gains through the close. The Philadelphia Semiconductor (Charts) index, or the Soxx, lost around 0.5 percent after having been more than 2 percent higher in the morning.
Leading the Dow higher, component Boeing (BA: up $0.89 to $43.58, Research, Estimates) gained 1.5 percent, off its highs, after the company said it was raising its quarterly dividend almost 18 percent and that it will resume a share buyback program.
Other Dow gainers included Exxon Mobil (XOM: up $1.13 to $43.68, Research, Estimates), up 2.6 percent, Caterpillar (CAT: up $1.64 to $79.37, Research, Estimates), up 2.1 percent and General Electric (GE: up $0.35 to $30.30, Research, Estimates), up 1.2 percent.
Market breadth was positive. On the New York Stock Exchange, gainers beat losers by nearly two-to-one on volume of 1.56 billion shares. On the Nasdaq, advancers topped decliners by a three-to-two margin, as 1.89 billion shares changed hands.
Released in the early morning, the Institute for Supply Management's manufacturing index for April shrank to 62. 4 from 62.5 in March, and came in below the forecasts of a consensus of economists surveyed by Briefing.com. The number was still quite strong -- any reading above 50 indicates expansion in the sector.
Separately, the March read on construction spending showed a rise of 1.5 percent, compared with expectations for 0.5 percent and a slide of 0.1 percent in February.
Treasury prices moved scarcely higher. The 10-year note added 1/32 of a point in price, for a yield of 4.50 percent. The dollar gained versus the euro and edged lower versus the yen.
In commodity markets, NYMEX light sweet crude oil rose 83 cents to settle at $38.21 a barrel. COMEX gold closed unchanged at $387.50 per ounce.
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