U.S stocks gain on talk Fed stimulus to stay; Dow gains 0.91%

U.S. stocks rose on Tuesday after the Federal Reserve kicked off a two-day monetary policy meeting, with many investors betting the U.S. central bank will keep stimulus measures in play in wake of soft inflation data.

At the close of U.S. trading, the Dow Jones Industrial Average finished up 0.91%, the S&P 500 index ended up 0.78%, while the Nasdaq Composite index rose 0.87%.

The Labor Department said earlier that the country's consumer price index in May rose 1.4%  on year, in line with forecasts and up from 1.1% in April though below the Fed's 2.0% target.

Consumer prices rose 0.1% in May from April, slightly below expectations for a 0.2% increase.

Core inflation, which excludes food and energy costs, rose 0.2% in May from April, also in line with expectations.

The year-on-year core inflation rate came in unchanged at 1.7%

In a separate report, the Commerce Department said the number of building permits issued in the U.S. fell 3.1% in May to 974,000, outpacing expectations for a decline of 2.8% to 975,000 units.

U.S. housing starts rose by 6.8% last month to hit 914,000 units, below expectations for an increase of 11.4% to 950,000.

The data fueled expectations that the Fed will keep stimulus measures in play such as its USD85 billion asset-purchasing program for a while even if monetary authorities signal an exit strategy on Wednesday.

Stimulus tools tend to send stock prices gaining.

Leading Dow Jones Industrial Average performers included General Electric, up 2.40%, UnitedHealth Group, up 2.05%, and Verizon Communications, up 1.66%.

The Dow Jones Industrial Average's worst performers included Merck, down 0.08%, Microsoft, up 0.03%, and Procter & Gamble, up 0.09%.

European indices, meanwhile, finished mixed.

After the close of European trade, the EURO STOXX 50 fell 0.07%, France's CAC 40 fell 0.08%, while Germany's DAX 30 finished up 0.17%. Meanwhile, in the U.K. the FTSE 100 finished up 0.69%.

On Wednesday, all eyes will focus on the Federal Reserve and its announcement on monetary policy.