By Joe Wallace and Joanne Chiu 

U.S. stocks rose Monday and oil dropped sharply after government officials signaled that measures to contain the coronavirus pandemic may remain in place for an extended time.

The Dow Jones Industrial Average rose 1.9%, or 414 points, to 22052. The S&P 500 added 2.2%, and the Nasdaq Composite climbed 2.6%.

The White House on Sunday extended its social-distancing guidelines through the end of April. The move marks a shift in stance for President Trump, who had said that he hoped to ease some restrictions by Easter to limit the economic damage. Many businesses around the country have closed or limited operations to help ease the spread of the fast-moving virus.

U.S. crude-oil futures dropped more than 6% to the lowest level in more than 18 years as analysts forecast that quarantine measures are leading to the biggest decline in oil demand in history.

"It's pretty clear that the next quarter at least is going to be extremely poor," said Oliver Jones, market economist at Capital Economics. "We're going to see some incredibly steep contractions in economic activity in many advanced economies. It's quite historic."

The end of the first quarter, on Tuesday, will also test many businesses' ability to pay bills. Traders, meanwhile, are bracing for fresh constraints on liquidity in some financial markets as investors take stock of portfolios and banks assess their balance sheets at the end of March.

U.S. crude-oil prices came under renewed pressure as the restrictions on business activity in most economies -- combined with the threat of elevated production levels from Saudi Arabia and Russia -- raised the prospect of a longer downturn in fuel markets.

Global oil demand is set to drop by 12 million barrels a day in the second quarter in the steepest decline on record, according to analysts at Bank of America. With production also set to pick up, the bank forecasts that both U.S. and global crude futures will fall below $20 a barrel in the coming months and that the world may run out of storage space for oil.

U.S. crude was down 5.2% at $20.41 a barrel, approaching levels last seen in February 2002. Brent crude, the global oil benchmark, slumped 7.7% to $25.77 a barrel, extending its plunge this year to 60%.

While equities are stable this morning, the market to watch is crude, said Art Cashin, the head of UBS' floor operations at the NYSE, in a morning note. Traders are guessing there may be a "major test" at the $17-$18 level, he said.

That level was the bottom of the late 2001-early 2002 trading range. On Nov. 15, 2001, U.S. crude closed at $17.45.

Despite the moves in equities, though, stock prices don't yet reflect the level of disruption to business activity taking place in the U.S., said Sophie Huynh, a strategist at Société Générale.

Curbs on the ability of companies receiving government support to return money to shareholders will also erode what has been a key source of support for the market in recent years, she added.

In corporate news, shares of Abbott Laboratories jumped 7.2% after the drugmaker said the U.S. Food and Drug Administration had approved an emergency-use coronavirus test. Johnson & Johnson rose 6.1% after the company said it had made progress on a vaccine to prevent Covid-19 and that the product could be ready in early 2021.

U.S. air carriers including United Airlines Holdings, Delta Air Lines and American Airlines Group fell as the companies cut flight schedules and look for other ways to pare costs, including eliminating jobs and cutting pay.

In another sign of investor caution, the yield on the 10-year U.S. Treasury note, a security that is seen as a haven, fell to 0.612%, from 0.744% Friday.

Markets have entered a new phase in their response to the pandemic, said James McCormick, a strategist at NatWest Markets. After governments and central banks took extraordinary steps to backstop livelihoods and the financial system in March, investors are now attempting to assess the economic impact of the worsening pandemic and the effectiveness with which these stimulus packages are deployed.

"In April, we're settling into understanding a bit more about the growth impact and looking hopefully for some signs of flattening of the infection and mortality curves," Mr. McCormick said.

Investors are awaiting a series of data releases this week that will start to reveal the economic strain exerted by the pandemic and measures to contain the spread of the virus. In the U.S., surveys of purchasing managers are expected to show a steep decline in manufacturing activity, while jobless claims are likely to rise again after last week's record surge.

"There's still a lot of bad news to come on the macro front," said Nicholas Brooks, head of research at International Capital Group, referring both to economic data and the coronavirus death toll. "It's hard to see a sustained rally in markets in this kind of environment."

In Europe, the pan-continental Stoxx Europe 600 index rose 0.5%.

In Asia, Japan's Nikkei 225 index, which logged its best week in its history last week, pulled back 1.6%. Hong Kong's Hang Seng Index and the Shanghai Composite in mainland China also retreated.

Monetary authorities in the region took further steps to shore up markets and economies. China's central bank cut an interbank interest rate, while its counterpart in New Zealand said it would start buying corporate bonds to help companies stay afloat. Singapore, which uses foreign-exchange rates rather than borrowing costs as its main policy tool, also eased policy.

The renewed volatility follows a week in which the Dow Jones Industrial Average logged its biggest advance since 1938.

"We've had the rally, and now we might have a bit more of the reality," said Sean Taylor, chief investment officer for the Asia-Pacific region at asset manager DWS.

Write to Joe Wallace at Joe.Wallace@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

March 30, 2020 12:32 ET (16:32 GMT)

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