Investing.com - U.S. stocks rose on Tuesday after an uptick in consumer prices fueled hopes the Federal Reserve's statement on monetary policy due out on Wednesday will provide a largely positive take on the U.S. economy.
At the close of U.S. trading, the Dow 30 rose 0.16%, the S&P 500 index rose 0.22%, while the NASDAQ Composite index rose 0.37%.
The Volatility S&P 500 index, which measures the outlook for market volatility, was down 4.66% at 12.06.
The Labor Department reported earlier that the U.S. consumer price index rose 2.1% on year in May and rose 0.4% from April. Consumer prices rose at their fastest pace since October 2008, which sparked demand for the greenback.
Market expectations had been for an annual increase of 2.0% and a monthly rise of 0.2%.
Firming inflation rates should prompt the Federal Reserve to continue winding down its monthly bond-buying program and later raise benchmark interest rates from current record lows as the economy gains steam.
The Fed will conclude a two-day policy meeting on Wednesday, and the U.S. central bank is seen scaling back its asset-purchasing program by another $10 billion, though hikes to benchmark interest rates won't come until sometime in 2015.
While Fed stimulus programs and low borrowing costs tend to boost stocks, a decision to move away from ultra-accommodative policy would signal the arrival of more robust economic recovery, which would also bode well for equities.
A separate report showed that both U.S. housing starts and building permits fell in May, pointing to underlying weakness in the housing sector.
The Commerce Department reported that housing starts dropped by 6.5% last month to 1.001 million units, while the number of building permits issued last month fell by 6.4% to 991,000 units, though markets focused on inflation data instead.
On Monday, the International Monetary Fund trimmed its 2014 U.S. economic growth forecast to 2% from 2.8% due to a harsh winter and a “still-struggling housing market," though markets bet the Fed's take on the economy will be positive even with a few clouds on the horizon.
Leading Dow Jones Industrial Average performers included Home Depot Inc (NYSE:HD), up 1.43%, Goldman Sachs Group Inc (NYSE:GS), up 1.43% as well, and J P Morgan Chase & Co (NYSE:JPM), up 0.98%.
The Dow Jones Industrial Average's worst performers included Exxon Mobil Corporation (NYSE:XOM), down 0.48%, Johnson & Johnson (NYSE:JNJ), down 0.48% as well, and Dupont Fabros Technology Inc (NYSE:DFT), down 0.46%.
European indices, meanwhile, ended the day higher.
After the close of European trade, the DJ Euro Stoxx 50 rose 0.39%, France's CAC 40 rose 0.58%, while Germany's DAX rose 0.37%. Meanwhile, in the U.K. the FTSE 100 rose 0.18%.
On Wednesday, stocks will move on the Federal Reserve's announcement on monetary policy.