NEW YORK (TheStreet) -- U.S. markets jumped Monday as a spate of positive economic data fueled speculation the Federal Reserve could reduce the size of its bond-buying stimulus program at its two day meeting that begins tomorrow on signs that the economy is improving.

Investors spent the day contemplating, handicapping and debating whether the Fed reduce its $85 billion-a-month bond-buying stimulus program at its two-day central bank policy meeting beginning tomorrow, or maintain current levels. 

"They're [investors] probably placing their bets this week on the fed taper," Derrick Irwin, portfolio manager at Wells Fargo Advantage Emerging Markets Fund, said in a phone interview from Boston. Irwin said the gains in Monday's trading suggests that investors are making bets the Fed "will probably err on the side of waiting to another month."

  • The S&P 500 rose 0.63% to 1,786.55 while Dow Jones Industrial Average was 0.82% higher at 15,884.89. The Nasdaq closed up 0.71% to 4,029.52.
  • The Federal Reserve's policy meeting begins Tuesday and ends Wednesday. Bets have been placed that the central bank will reduce stimulus from this month following a drop in the jobless rate to 7%. "Fed officials face a more difficult decision at their meeting (this) week, as the employment and growth data have picked up since the October meeting," said Goldman Sachs' Jan Hatzius. "But our central forecast for the first tapering move remains March, with January possible as well."
  • November industrial production posted its largest increase in a year, as mining and utilities output rebounded. Industrial output lifted 1.1% against expectations for a 0.5% rise, the Federal Reserve said Monday - data which adds to the picture of an ongoing economic recovery. 
  • S&P 500 Winner and Loser: LSI Corp (LSI) was the top gainer in the index, soaring 38.4% to $10.95 after Avago Technologies  (AVGO) agreed to buy the company for $6.6 billion. Adobe Systems (ADBE) posted the worst percentage loss in the S&P as shares slid 3.9% to $58.50.
  • Capacity utilization - a measure of slack at industrial firms- rose 0.8 percentage point to 79.0%. Overall, manufacturing output is 2.9% higher from a year earlier but below its pre-recession peak. The December Empire State Manufacturing report rose less than expected to 1. Third-quarter nonfarm labor productivity increased 3%. Unit labor costs fell 1.4%. 
  • Growth in China's factory sector hit a three-month low in December a survey showed Monday. Other recent data has also pointed to slowing growth in the otherwise resilient economy, with the flash Markit/HSBC Purchasing Managers' Index falling to 50.5 in December from November's reading of 50.8, but remaining in expansion territory. 

-- By Jane Searle in New York.