Stock market © Digital Vision, SuperStock

Stocks eased off their best levels but were still higher on the first day of the third quarter, with the Dow (DJI) bouncing above the psychologically-important 15,000 level, boosted by a pair of better-than-expected economic reports.

Major averages closed higher for the quarter and the Dow posted its strongest first-half performance of the year since 1999. So far for the year, the Dow has surged more than 14%, while the S&P 500 (SPX) and Nasdaq (CCO) have spiked more than 13% each.

"History is a little bit in our favor -- when you have a good first-half, the second half tends to show some follow through, but this may be a difficult year to figure out because we'll have the lag of sequestration, everyone trying to figure out where the Fed is going," said Art Cashin, director of floor operations at UBS Financial Services.

The Dow Jones Industrial Average jumped more than 150 points, led by Disney (DIS) and American Express (AXP).

The S&P 500 and the Nasdaq also rallied. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slipped near 16.

Most key S&P sectors were higher, led by materials and techs, while utilities slipped.

On the economic front, manufacturing activity edged higher in June to 50.9, according to the Institute for Supply Management, a hair above expectations for 50.5. A reading above 50 indicates expansion in the sector. However, hiring in the sector fell to the lowest since September 2009.

And construction spending rose 0.5% in May to an annual rate of $874.9 billion, rising to its highest level in nearly four years, according to the Commerce Department.

Japanese shares were boosted by a survey which showed corporate sentiment had turned positive for the first time in two years, as optimism about Prime Minister Shinzo Abe's radical stimulus policies offset concerns about recent market volatility.

"The risk is that the economy may be doing well enough that it actually dis-incentivizes the drive for structural reform. That would certainly lead to a dampening of market sentiment," said Alistair Newton, senior political analyst at Nomura.

However, data from China showed that industrial activity continued to decline in June, amid concerns about overcapacity and weak demand.

"I think the story for China is basically that there is not any story left. Economic activity has peaked and we think that data will surprise on the downside," said Sailesh Jha, chief strategist at Arcus Capital Singapore.

This week will be an extremely light on earnings, ahead of the official start of the second quarter earnings season on July 4. No major companies are expected to report results before the start of trade on Monday.

In Europe, shares traded mixed after data suggested euro zone manufacturing activity stabilized last month, sparking concerns the European Central Bank might move to tighten monetary policy.

In other corporate news, Onyx Pharmaceuticals (ONXX) confirmed it had rejected a purchase offer from Amgen to buy the company in a deal valued at about $10 billion.

At the same time, Dow component 3M declined after Morgan Stanley cut the company to "equal weight" on belief that the stellar 22% gain over the past year may have run its course.

Click here to become a fan of MSN Money on Facebook

Online radio provider Pandora (P) jumped following a Morgan Stanley upgrade to "overweight" on belief that the company "pureplay exposure to the secular shift of radio dollars to online channels."

More from CNBC