By Jon Sindreu and Gunjan Banerji 

U.S. stocks surged Monday, powered by shares of industrial companies, as concerns about a trade war between the U.S. and China eased.

The Dow Jones Industrial Average jumped 298 points, or 1.2%, to 25013, topping 25000 for the first time since March 16. The S&P 500 and Nasdaq Composite advanced 0.7% and 0.5%, respectively.

Money managers said discussions between the U.S. and China this weekend have helped avert a trade war. Treasury Secretary Steven Mnuchin said the U.S. will suspend its efforts to apply tariffs to $150 billion in Chinese imports to the U.S., and that China would hold its threat to retaliate with tariffs on $50 billion in U.S. goods.

"When you potentially take $150 billion of tariffs off the table, that's going to drive the market," said Jason Barsema, president at Halo Investing.

Shares of industrial companies were the biggest winners in the S&P 500, adding 1.5%. Such companies tend to have exposure to foreign sales, making them a beneficiary of cooling rhetoric on trade.

Boeing, which has been sensitive to investor sentiment on trade, was the biggest gainer in the Dow, rising 3.6%. Caterpillar shares jumped 2.1%.

Meanwhile, shares of General Electric added 1.9% after it agreed to merge its railroad business with Wabtec, an equipment maker for transit systems and freight railroads, in an $11 billion deal.

To many investors, tariff threats stoked concerns that more countries world-wide would erect larger gates on trade. Stocks have rallied several times on the belief that trade tensions were easing, only to fall back down as investors took the opposite view.

"It's not in anyone's interests to have severe escalation," said Caroline Simmons, deputy head of U.K. investment at UBS Wealth Management, who believes investors won't ultimately put too much weight on geopolitical spats. "It's noise; in the midterm, it's going to come down to what's being delivered growth-wise and earnings-wise."

While the global economy remains robust and first-quarter earnings have been strong, stock markets have mostly traded sideways this year because many investors have started to fear that the pace of the expansion has already peaked.

Recent deal activity alongside the receding geopolitical tensions propelled major U.S. stock indexes higher, said Eric Freedman, chief investment officer of U.S. Bank Wealth Management.

Greater deal-making could give stocks another lift, he said.

Still, analysts say they are closely watching potential risks to stocks such as Treasury yields.

If government bond yields rise too high, as bond prices fall, some investors may choose to hold government debt rather than equities, threatening any stock rally.

Though tensions between the U.S. and China abated Monday, the two countries haven't reached a final resolution yet. Investors will be closely tracking those discussions.

"It's going to go back and forth," said Mr. Barsema.

Later this week, the Federal Reserve will release the minutes of its May policy meeting, which will shed further light on how fast officials are likely to raise rates in reaction to inflation risks.

U.S. crude climbed 1.3% Monday to $72.24 a barrel.

In Europe, the Stoxx Europe 600 gained 0.3%, with markets in Germany and some other countries in the region were closed for a holiday. Britain's FTSE 100 rose 1.0%, marking an all-time high.

Meanwhile, spreads between Italian and German government bonds continued to widen and Italy's FTSE MIB stock-market index dropped 1.5% Monday, a sign that investors remain concerned about antiestablishment parties' advances in forming a new government. While bond markets initially brushed off such worries, they have been slightly rattled by recent revelations that the new government could seek to threaten some of the eurozone's fiscal and monetary rules.

Asian stocks powered higher, with all of China's indexes notching gains. Japan's Nikkei Stock Average closed up 0.3%.

Write to Jon Sindreu at jon.sindreu@wsj.com and Gunjan Banerji at Gunjan.Banerji@wsj.com

 

(END) Dow Jones Newswires

May 21, 2018 16:24 ET (20:24 GMT)

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