U.S. stocks closed more than 1 percent higher on Monday as investors cheered a pause in the dollar rally and eyed renewed weakness in oil prices ahead of Wednesday's key Fed meeting.
"The markets are focused on currencies. The dollar is down against the euro," said Peter Boockvar, chief market analyst at The Lindsey Group. "Markets are just awaiting what we see on Wednesday."
The U.S. dollar index fell nearly 1 percent on Monday to trade below 100. The index gained nearly 3 percent in the last week as the euro dipped to 12-year lows below $1.05.
The Dow Jones industrial average gained more than 225 points, with all the major indices advancing to hold in the black for the year.
Still, "with all these ups and downs we've basically gone nowhere year-to-date," said Nick Raich, CEO of The Earnings Scout. "Markets first have to reset to the lower (earnings) growth."
The Dow transports rose more than 1.5 percent as oil prices fell.
Crude oil settled down 96 cents at $43.88 a barrel, its lowest in six years. Brent crude hovered above $53 a barrel.
"I think oil clearly added to some of the volatility last week," said Randy Frederick, managing director of trading and derivatives at Charles Schwab. Today's focus is still on the dollar and oil-tomorrow it's housing. "The big one for the week is the Fed meeting and whether they take out 'patient.'"
"Seems raising interest rates would further strengthen the dollar," he said. "What's happened since (the strong jobs report) puts us in a state of 'we don't know' (about Fed action)."
Frederick added that if oil continues to slide to the levels we saw in January, the S&P 500 could fall to 2000, less than 100 points below where it is now.
The Federal Open Market Committee holds its March meeting over the next two days, with the release of its statement on Wednesday. Investors are watching to see if the key word "patient" remains in the statement, an indication of when short-term interest rates might go up.
"This is a week most concerned that there's strong enough economic data for the Fed to remove 'patient,'" said Art Hogan, chief market strategist at Wunderlich Securities. "The entire world will breathe a sight of relief if they do" because it gives the Fed the option of raising interest rates, or not.
"I think we're very well telegraphing they're taking out 'patient' and putting in something like 'data dependent,'" said Eric Stein, co-director of global income at Eaton Vance Management. "Not only gives them a lot of flexibility but I think (it) is appropriate."
Central bank policies continue to diverge from the United States', with China's Premier Li Keqiang suggesting more stimulus in the region and the launch of quantitative easing in the European Union last week. Shanghai equities surged to five-year highs and the DAX hit a record on Monday.
U.S. stocks mostly sold off last week amid more than 1 percent swings as investors weighed the implications on an interest rate hike from the dollar surge and mixed economic data.
However, many analysts were surprised that the fear gauge, the CBOE volatility index (VIX) (^VIX), remained near 16, below the expected 19 to 20 range.
"The VIX is not the only way to indicate volatility. Volatility is measured by swings in those markets," Frederick said. "Eventually one of the two has to catch up. Either the VIX moves higher or markets settle down."
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In the lull before companies begin reporting first-quarter earnings in mid-April, few firms post results this week. Economic data is also light.
Home builder confidence fell two points to 53 in March, down from a high of 59 last September.
Before the bell, the Empire State Index posted 6.90 for March, below February's 7.78. Industrial production rose 0.1 percent in February, below expectations, with capacity utilization slightly lower at 78.9 percent.
In corporate news:
Walgreens Boots Alliance (WBA) hit a record high following news after the bell on Friday that the firm will join the Nasdaq 100 on March 23.
Sotheby's (BID)-MSG (MSG) Chief Executive Officer Tad Smith has left that job to take the CEO job at Sotheby's. He'll be replaced on an interim basis at MSG by James Dolan, the president and CEO of MSG parent Cablevision and the Executive Chairman of MSG.
Microsoft (MSFT)-UBS cut earnings estimates for Microsoft, citing weaker-than-expected PC demand, ongoing mobile challenges, and the impact of foreign currency.
Scripps Network Interactive (SNI)-The media group struck a deal to buy a majority stake in Polish broadcaster TVN for $615 million.
Hewlett-Packard (HPQ)-A judge gave preliminary approval to the settlement of a lawsuit by Hewlett-Packard shareholders over its ill-fated acquisition of British software firm Autonomy. HP bought Autonomy for more than $11 billion in 2011, but then had to take an $8.8 billion write-off a year later.
Netflix (NFLX)-Netflix was downgraded to "sell" from "hold" at Evercore, pointing to an intensely competitive environment for the video streaming service.
BP (London Stock Exchange: BP.-GB)-BP will invest $12 billion in Egypt in a project that will produce the equivalent of three billion barrels of oil.
The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) closed up 228.11 points, or 1.29 percent, at 17,977.42, with UnitedHealth (UNH) leading gains, with Intel (INTC) and DuPont (DD) the only laggards.
DuPont continued to struggle with activist hedge fund Trian Fund Management over the composition of the chemical firm's board.
The S&P 500 (^GSPC) closed up 27.78 points, or 1.35 percent, at 2,081.19, with health care leading nine sectors higher and materials the only laggard.
The Nasdaq (^IXIC) closed up 57.75 points, or 1.19 percent, at 4,929.51.
The U.S. 10-year Treasury yield traded near 2.08 percent.
Advancers were a step ahead of decliners on the New York Stock Exchange, with an exchange volume of 749 million and a composite volume of 3.2 billion in the close.
Gold futures settled up 80 cents at $1,153.20 an ounce on the New York Mercantile Exchange.
As of Friday's close:
- The Dow Jones industrial average was within half a standard deviation below its 50-day moving average. Since 1981 the index has been in this position 4.58 percent of all trading days, according to quantitative analytics tool Kensho. The probability of the index moving lower is 45.3 percent and the probability of it moving higher in the days following is 54.7 percent.
- The S&P 500 was within half a standard deviation below its 50-day moving average. Since 1980 the index has been in this position 5.73 percent of all trading days, according to Kensho. The probability of the index moving higher in the days following is 51.9 percent and the probability of it moving lower is 48.1 percent.
- The Nasdaq composite was within one standard deviation above its 50-day moving average. Since 1980 the index has been in this position 5.38 percent of all trading days, according to Kensho. The probability of the index moving lower is 50.2 percent and the probability of it moving higher is 49.8 percent.
-CNBC's Peter Schacknow contributed to this report.
Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.
On tap this week:
4:00 pm: TIC data
Earnings: Burlington Stores, DSW, FactSet, Adobe Systems, Oracle
FOMC meeting begins
8:30 am: Housing starts
Earnings: FedEx, General Mills, Actuant, Williams-Sonoma, Herman Miller, Guess, Renren, Silver Wheaton, Jabil Circuit
7:00 am: Mortgage applications
10:30 am: EIA oil inventory data
2:00 pm: Fed statement
2:30 pm: Fed Chair Janet Yellen press briefing
Earnings: Nike, Lennar, Vince Holding
8:30 am: Initial claims
8:30 am: Current account Q4
10:00 am: Philadelphia Fed survey
Earnings: KB Home, Darden Restaurants, Tiffany
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