U.S. stocks closed higher in volatile trading on Monday as investors digested key economic data.

The Dow Jones Industrial Average increased 98.19 points, or 0.42 percent, to 23,531.35. The S&P 500 was up 17.75 points, or 0.70 percent, to 2,549.69. The Nasdaq Composite Index increased 84.61 points, or 1.26 percent, to 6,823.47.

On the data front, the U.S. services sector expanded at a slower-than-expected pace in December.

The Institute for Supply Management said its non-manufacturing index stood at 57.6 last month, lower than analysts' estimate and the figure in November.

On Friday, Federal Reserve chair Jerome Powell hinted at slower monetary tightening.

He said Fed officials were keeping a close eye on the voices of financial market, and that Fed policy was flexible and clung to real-time economic developments.

He added that the central bank would not hesitate to adjust its balance sheet reduction plan if it causes problems in the markets.

The Fed hiked interest rates for four times last year. Its rate hike pace, considered too rapid by some investors, has rattled the market.