Wall St rebounds after steep weekly decline; Fed in focus

By Angela Moon

NEW YORK (Reuters) - U.S. stocks rose on Monday, rebounding from their worst week in months as large deals boosted optimism but investors remained cautious ahead of an upcoming Federal Reserve policy meeting.

Equities are coming off their biggest weekly decline in nearly four months, a pullback that came on concerns the Fed may begin to wind-down the bond-buying stimulus at its two-day policy-setting meeting that ends Wednesday.

The stimulus has been a major contributor to the market's gains this year, and has been expected to keep a floor under stock prices for as long as it continues.

Investors have been trying to gauge the timing of when the central bank will start winding down its market-friendly bond purchases, with many market participants expecting the Fed to announce a tapering in March.

However, stronger economic data of late, including the November payroll report, led some to believe the tapering could come as soon as at the Fed's meeting this week. The Fed has said it will slow the program when certain economic indicators meet its growth targets.

"I still believe January or March are more likely, but the round of profit taking seen from December 10 through December 12 point to growing concerns. Traders should expect lots of volatility and uncertainty as this announcement approaches," said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research.

"There is little consensus whether good news is good or bad right now, with the indicators that I watch showing everything from fully bearish to fully bullish."

Among a number of M&A news, Avago Technologies Ltd agreed to buy LSI Corp for $6.6 billion, while American International Group Inc said it would sell its aircraft-leasing business to AerCap Holdings NV in a deal valued at about $5.4 billion.

Shares of Avago jumped 6.8 percent to $48.76 while LSI surged 39 percent to $10.96. AerCap surged 36 percent to $33.98 and AIG rose 2.3 percent to $50.86.

The Dow Jones industrial average rose 138.94 points or 0.88 percent, to 15,894.3, the S&P 500 gained 12.6 points or 0.71 percent, to 1,787.92 and the Nasdaq Composite added 30.141 points or 0.75 percent, to 4,031.116.

The S&P 500 fell below its 14-day moving average on Wednesday and has not risen above it since, a sign of weak near-term momentum. However, the benchmark index is less than 2 percent below its record closing high, indicating that recent selling has not been panic-driven.

Twitter Inc briefly hit a new all-time high of $60.20 in early morning trading, but has since fallen 2.2 percent to $57.73 near midday trade.

Procter & Gamble plans to reorganize its overseas business as part of Chief Executive A.G. Lafley's plans to cut costs, according to a Bloomberg report that cited three unidentified people briefed on the matter.

The New York Federal Reserve said on Monday its "Empire State" manufacturing activity index rose in December to 0.98 from -2.21 in November. Economists in a Reuters survey had expected a reading of 4.75.

(Reporting by Angela Moon; Editing by Theodore d'Afflisio)