Crude futures rallied in afternoon trading, reversing last week's trend and adding to worries about high energy prices as the summer driving season approaches. A barrel of light crude settled at $50.92, up $1.20, on the New York Mercantile Exchange.

The Fed's Open Market Committee was expected to raise the nation's benchmark rate by a quarter percentage point to 3 percent at its meeting tomorrow. Many investors waited to see what the central bank would have to say in its economic assessment statement about the recent slowdown in growth and the prospects for inflation.

"There's a certain amount of caution which is preventing investors from putting more assets to work," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "Right now there are too many question marks about the economy that need to be answered before we can move forward."

Yet while trading volume was lower than usual, the buying was broad based as some investors took a chance that the Fed's statement might be bullish for the market.

The Dow Jones industrial average rose 59.19, or 0.58 percent, to 10,251.70.

Broader stock indicators also moved higher. The Standard & Poor's 500 was up 5.31, or 0.46 percent, at 1,162.16, and the Nasdaq composite index gained 7.00, or 0.36 percent, to 1,928.65.

The bond market finished slightly higher after a volatile session, with the yield on the 10-year Treasury note falling to 4.19 percent from 4.20 percent late Friday. The dollar moved higher against most major currencies, while gold prices fell sharply.

Growth in manufacturing activity declined slightly more than expected in April, according to the Institute for Supply Management. The ISM's manufacturing index came in at 53.3, compared to 55.2 in February. Economists had expected a reading of 55. Any reading above 50 represents growth in activity.

On a better note, construction spending rose 0.5 percent in March, unchanged from the previous month but better than the 0.3 percent economists expected, the Commerce Department said.

With conflicting economic data pointing to a malaise heading into summer, investors will look to the Fed for a more definitive take on the economy's direction.

"We've had a heightened sense of uncertainty about the economy and interest rates, and that led to all the volatility in April," said Joseph Keating, chief investment officer at AmSouth Asset Management. "I think it would be good for the Fed to acknowledge that these higher oil prices we've seen have contributed to the slowdown in the economy, and that inflation remains in check."

In merger news, Qwest Communications International Inc. added 5 cents to $3.47 after the company officially dropped out of contention for MCI Inc. after Dow component Verizon Communications Inc. revised its bid this morning. MCI will now go to Verizon for $8.5 billion, even though Qwest still had a $9.85 billion offer on the table. Verizon fell 83 cents to $34.97, while MCI lost 83 cents to $25.70.

High-end retailer Neiman Marcus Group Inc. dropped $5.36 to $92.96 after the company announced a $5.1 billion buyout agreement with two private equity firms. The deal, signaling further consolidation in the retail sector, valued the company at $100 per share.

After climbing sharply late Friday, shares of Morgan Stanley tumbled $3.23 to $49.39 after the company's board, in an emergency weekend meeting, endorsed embattled Chairman and Chief Executive Phil Purcell. The board made changes to make it easier to oust Purcell, but did not dismiss him or strip him of the chairman title, as some investors had expected.

American International Group Inc. said it will delay filing its annual report a second time, and that the accounting adjustments and restatements necessary would wipe out $2.7 billion of the company's net worth. Investors, however, saw the announcement as a sign that the embattled insurer was starting to right itself, and AIG climbed $2.59 to $53.44.

Advancing issues outnumbered decliners by about 8 to 5 on the New York Stock Exchange, where volume came to 1.56 billion shares, compared to 1.89 billion at the same point on Friday.

The Russell 2000 index of smaller companies was up 6.48, or 1.12 percent, at 585.86.