Wall Street gained overnight after Lawrence Summers withdrew his candidacy for the top Federal Reserve job and as agreement on a plan to get rid of Syria's chemical weapons removed the imminent threat of US military action.
Summers, who unexpectedly announced his decision on Sunday, leaves Fed Vice Chairwoman Janet Yellen as the frontrunner to succeed Chairman Ben Bernanke. Summers would have kept monetary policy tighter than Yellen, according to a Bloomberg Global Poll.
Indeed, traders now give a 55 per cent probability of the first rate increase in December 2014, and 68 per cent chance in January 2015, according to CME Group's Fed Watch, which generates probabilities based on the price of federal funds futures traded at the Chicago Board of Trade, Reuters reported.
"Summers was viewed by the market as someone who would remove accommodation more quickly. He was pretty much priced in," John Brady, a managing director at Chicago-based RJ O'Brien, told Reuters. "It's the Fed chairman recalibration trade."
Fed policy makers are beginning a two-day policy meeting, starting on September 17, and are expected to start reducing the pace of the central bank's US$85 billion-a-month bond-buying program.
In late afternoon trading in New York, the Dow Jones Industrial Average climbed 0.83 per cent to 15,504.34, the Standard & Poor's 500 Index rose 0.64 per cent to 1,698.77, while the Nasdaq eked out a gain of 0.03 per cent to 3,723.23.
Shares of Boeing jumped 4 per cent, propelling gains in the Dow.
The S&P 500 will rally 12 per cent to 1,900 by the end of next year as valuations rise and investors pour money into mutual funds, according to Citigroup, Bloomberg News reported.
A Fed report today showed US industrial output climbed 0.4 per cent in August, following a flat July. Manufacturing production gained 0.7 per cent, a promising sign for the remainder of the year.
Separately, the Empire State general business conditions index fell to 6.29 in September from 8.24 in August, according to the New York Fed.
Overall, the picture is a positive one.
"The economy continues to expand at enough of a pace where we are creating jobs and helping to bring down the unemployment rate," Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh, told Reuters. "I would not be surprised to see an announcement [on tapering] on Wednesday."
In Europe, the Stoxx 600 Index gained 0.6 per cent from the previous close. The UK's FTSE 100 rose 0.6 per cent, France's CAC 40 added 0.9 per cent, while Germany's DAX advanced 1.2 per cent.
Germany's benchmark index, which has now risen 13 per cent so far this year, surged to a record high during the session, and closed at a record high too.
Chancellor Angela Merkel's bid for a third term got a boost this past weekend after a regional ally won a local vote.