Wall Street has rallied, with the Nasdaq climbing 3.0 per cent and the Dow marking a record-high close after the United States and Iran struck a preliminary agreement to end the Middle East war and reopen the Strait of Hormuz, leading to an easing of inflation fears as crude oil prices dropped.
The deal framework - expected to be formally signed in Switzerland on Friday - did not address key issues such as Iran's nuclear program and the Israel-Lebanon conflict.
Still US crude futures settled down 4.9 per cent following the news and hit their lowest level since March, aiding shares of energy-sensitive airline and cruise stocks and hurting energy shares.
Rate-sensitive technology stocks rallied as investors were more comfortable taking on riskier bets with lower oil prices easing inflation fears.
"Markets are higher on a classic relief rally. We have a US-Iran deal that's driving oil sharply lower. This is easing inflation fears and basically pushing investors back into risk assets like technology," said Gene Goldman, chief investment officer at Cetera Investment Management, in El Segundo, California.
The three main indices marked their third consecutive session of gains, recovering after Middle East tensions and a pullback in AI-related stocks had put Wall Street's record climb on pause more than a week ago.
The Dow Jones Industrial Average rose 468.77 points, or 0.92 per cent, to 51,671.03, the S&P 500 gained 122.83 points, or 1.65 per cent, to 7,554.29 and the Nasdaq Composite gained 795.10 points, or 3.07 per cent, to 26,683.94 for its strongest one-day percentage gain since March 31.
One hope among investors is that a resumption of oil flows from the Middle East and easing crude prices could give the US Federal Reserve, which is grappling with inflation, room to hold interest rates steady instead of raising borrowing costs.
Along with the Iran deal, another big focus for the week is the US central bank's next policy update, which is due on Wednesday, after chair Kevin Warsh's first policy meeting since he took over from Jerome Powell last month.
The meeting follows May inflation data that showed higher energy costs filtering into consumer prices.
Traders expect the Federal Reserve to leave interest rates unchanged this week but are still pricing in a nearly 42 per cent probability for a 25-basis-point hike by the end of the year, according to CME Group's FedWatch tool.
Among the 11 major S&P 500 industry sectors, S&P 500 tech index led the gainers with a 3.4 per cent advance.
The S&P 500 energy index was its biggest laggard, finishing down 3.6 per cent.
In individual stocks, SpaceX's shares rallied 19.6 per cent in their second day of trading after the Elon Musk-led firm's blockbuster IPO pushed its valuation above $US2 trillion ($A2.8 trillion).
The stock's $US192.46 close on Monday compared with its $US135 IPO price.
Investors had been relieved by its strong market debut on Friday as they hoped that its landmark Nasdaq launch would bode well for the broader market and for the highly anticipated OpenAI and Anthropic IPOs expected later this year.
Elsewhere, airlines were among the leading transport sector gainers with United Airlines rallying 3.9 per cent on hopes for cheaper jet fuel with oil prices falling.
Also cruise companies rallied with Norwegian Cruise adding 3.7 per cent and Carnival Corp climbing 3.2 per cent.
The CBOE Volatility Index, Wall Street's fear gauge, slipped for its third day in a row after rising to a more than two-month high the previous week.
The Philadelphia SE Semiconductor index finished up more than 5.0 per cent for a record-high close after dropping more than 12 per cent below its most recent record before staging a three-day comeback rally.
Big boosts on Monday came from chip giant Nvidia, which rose 3.5 per cent, and Micron, which soared 10.5 per cent, after at least two brokerages sharply raised their price targets for the stock.
In other movers, shares in Fox tumbled 16.8 per cent after the company said it would buy Roku in a $US22 billion deal.
Roku shares fell 1.9 per cent.
On US exchanges 21.29 billion shares changed hands compared with the 20.82 billion average for the last 20 sessions.
Advancing issues outnumbered decliners by a 1.77-to-1 ratio on the NYSE where there were 502 new highs and 90 new lows.
On the Nasdaq, 3,034 stocks rose and 1,900 fell as advancing issues outnumbered decliners by a 1.6-to-1 ratio.
The S&P 500 posted 41 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 202 new highs and 89 new lows.
