Wall Street closed higher on Monday following an announcement by the US Federal Reserve regarding its corporate bond purchasing programme that boosted investor confidence, which had been wavering amid a spike in new Covid-19 cases.

All three major US stock indexes reversed losses in afternoon trading, following the Fed's decision to apply an indexing approach to its secondary market corporate credit facility to create a more diversified portfolio.

“No doubt the market liked it: Who doesn't like more cake and ice cream?” said Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York. “It fuels traders to buy individual stocks and take on higher risk because the Fed has backstopped the bond market and kept a tighter lid on interest rates,” he added.

A flood of liquidity in the form of fiscal and economic stimulus, along with uneven but steady re-openings of state and local economies, sparked a remarkable rally in the stock market since its late-March trough.

Gains were led by cyclical stocks and tech, with S&P 500 financials among the days biggest percentage gainers.

“The banks probably have a bunch of corporate debt on their balance sheets and now there's a buyer for it,” Pavlik added. "Someone's going to be buying those bonds because the Fed is telling them it's OK.”

But surging new cases of Covid-19 in China, where the pandemic originated, prompted the reintroduction of containment measures, and record hospitalizations in several US states dampened investor risk appetite.

On the flipside, an uptick in China's factory output and a much better-than-expected Empire State manufacturing report gave evidence that the pandemic-hobbled global economy was on the road to recovery.

Earlier, the US Federal Reserve announced it had opened registration for its Main Street Lending program to help businesses weather the storm of mandated lockdowns.

Last week, the central bank provided its first pandemic era outlook, and market participants will be closely following Fed Chair Jerome Powell's testimony this week before Congress for details on the central bank's somber economic projections.

Unofficially, the Dow Jones Industrial Average rose 169.17 points, or 0.66 per cent, to 25,774.71, the S&P 500 gained 26.37 points, or 0.87 per cent, to 3,067.68 and the Nasdaq Composite added 138.26 points, or 1.44 per cent, to 9,727.07.

Shares of Drugmaker Moderna Inc jumped following a report that Israel is in advanced talks to buy its coronavirus vaccine.

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