The S&P/TSX composite index finished up 101.53 points at 12,288.9.
The Canadian dollar was down 0.08 of a cent at 98.26 cents US.
U.S. indexes also closed positive but well off the highs of the session after a published report a day before the start of a two-day Fed meeting said the central bank will indeed indicate a tapering off of its bond purchases.
The Dow Jones industrials backed off from a gain of 192 points to close up 109.67 points at 15,179.85. Gains started to fade after the Financial Times said Fed chairman Ben Bernanke will use a news conference Wednesday to signal the bank will start to cut back on its US$85 billion of bond purchases each month.
The Nasdaq climbed 28.58 points to 3,452.13 and the S&P 500 was ahead 12.31 points to 1,639.04.
Markets have been volatile since late May when Bernanke first mentioned that the Fed would consider cutting back on the bond purchases if economic data — particularly job growth — improved. Triple-digit swings on markets have become almost commonplace.
But the stimulus measures, known as quantitative easing, have been popular as they have kept interest and bond yields low and kept a rally going on stock markets practically non-stop since late last year.
Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis, observed that there has been a growing sense that the Fed will move slowly when it withdraws stimulus.
"I think the market is starting to warm up to the idea that the tapering is a very deliberate word — there's going to be a slow, wind-down of monetary policy that is not sustainable," Fehr said.
Speculation on the Fed tapering its bond purchases has depressed equity markets and markets in Toronto and New York retreated more than one per cent last week. At the same time, bond yields have been rising, pushing mortgage rates higher. And that has raised worries that rising rates could derail the recovery in the housing sector.
Investors were encouraged by data Monday showing that most U.S. homebuilders were optimistic about home sales in May.
And the National Association of Home Builders/Wells Fargo builder sentiment index released Monday leaped to 52 this month from 44 in May. The index hasn’t been that high since April 2006, just before the housing market collapsed.
In corporate news, Brookfield Asset Management Inc. (TSX:BAM.A) is selling its Longview forestry assets in the U.S. Pacific Northwest through deals totalling nearly $3.7 billion. Weyerhaeuser Co. (NYSE:WY) will acquire Brookfield's Longview Timber for $2.65 billion. KapStone Paper and Packaging (NYSE:KS) will acquire Longview Fibre Paper and Packaging for $1.025 billion from the Toronto-based company. Brookfield shares rose 94 cents to $36.89.
All TSX sectors were higher with the consumer staples sector the biggest advancer, up 2.15 per cent with Shoppers Drug Mart (TSX:SC) ahead 87 cents to $45.85.
Commodity prices were mixed Monday and the energy sector gained 1.44 per cent as July crude on the New York Mercantile Exchange slipped eight cents to US$97.77 a barrel. Canadian Natural Resources (TSX:CNQ) advanced 80 cents to C$30.
July copper was unchanged at US$3.20 a pound and the base metals sector was 0.42 per cent higher. HudBay Minerals (TSX:HBM) rose 10 cents to C$7.81.
Financials also provided lift with Manulife Financial (TSX:MFC) up 30 cents to $16.03.
The telecom sector was also higher following some steep losses. Interest rate sensitive sectors such as real estate, telecoms and utilities have been punished lately as speculation about cutting back on the QE program has had the effect of pushing U.S. Treasury yields sharply higher.
The sector was also pressured after Ottawa quashed the idea that big telecoms could take over the spectrum of smaller players. Federal Industry Minister Christian Paradis said current rules would stand, leading Telus Corp. (TSX:T) to abandon its plan to buy Mobilicity.
On Monday, the component was ahead 0.27 per cent and Telus advanced 21 cents to $34.93.
August bullion fell $4.50 to US$1,383.10 an ounce and the gold sector was also up about 0.27 per cent. Kinross Gold Corp. (TSX:K) gained five cents to C$5.97.
Markets also found support from a solid showing from the latest reading of manufacturing in the U.S. Northeast. The Empire manufacturing index rose more than expected in June, to plus 7.8 from minus 1.4 the prior month.
However, results of the survey were mixed as the new orders and shipments balances components fell further into negative territory. The employment balance also fell.
"Overall, the rise in sentiment on the headline balance is encouraging," said CIBC senior economist Andrew Grantham.
"But we will need to see firm indicators of orders and shipments improving as well to say that U.S. manufacturing has really turned a corner."