Wall Street got over its trade war fears for a day.
The Dow surged 669 points - its third-biggest point gain in history - and had its best day in two and a half years. Investors were cheered by signs that the United States and China are talking behind the scenes to avoid a clash between the world's two biggest economies.
It was a sharp reversal after the stock market's worst week in two years. The Nasdaq gained 3.3% and the S&P 500 climbed 2.7%.
The Dow's gain of 2.8% was its biggest since August 2015. The only bigger point gains on record were in October 2008, during the financial crisis.
The Wall Street Journal reported late Sunday that the United States and China started quietly negotiating to expand US companies' access to Chinese markets. The Journal reported that Treasury Secretary Steven Mnuchin was weighing a trip to Beijing to pursue the negotiations.
A Treasury Department spokesperson declined to confirm the report.
"We're not afraid of a trade war, but that's not our objective," Mnuchin said in an interview Sunday on Fox News. "We are going to proceed with our tariffs ... we're also working on investment restrictions," Mnuchin said. "But we are simultaneously having negotiations with the Chinese to see if we can reach an agreement."
Investors were encouraged by the discussions. Stocks took a beating last week after President Trump announced plans to impose new tariffs on about $50 billion of Chinese goods in retaliation for alleged Chinese intellectual property theft.
The Dow plummeted more than 1,100 points on Thursday and Friday, slipping into a correction - a decline of 10% from the index's all-time high in January. The Dow, S&P 500 and the Nasdaq suffered their biggest weekly losses since January 2016.
China also hit back on Trump's earlier aluminum and steel tariffs by threatening its own tariffs on about $3 billion worth of imports of US goods, including pork, fruit and wine.
"The market thinks the tariffs are a trading tactic rather than a hardcore stance," said Sam Stovall, chief investment strategist at CFRA Research.
The "trade tiff" failed to dent the strong global economic outlook, Stovall said. "A sharp V recovery may not be all that surprising."
John Lynch, chief Investment strategist for LPL Financial, believes trade tensions could flare in the coming months, but the longterm risks to the market remain in check.
"When push comes to shove, we expect limited economic impact and manageable disruption to the supply chains of US companies," he said.
Twenty-nine of 30 companies on the Dow gained Monday. Microsoft led the way, gaining more than 7%. A Morgan Stanley analyst report said the company could top $1 trillion in market value within a year, powered by its cloud computing services.
The bond market also rallied from the cool down in US-China tensions.
The 10-year Treasury yield climbed to 2.83%. Last week, the 10-year yield fell sharply to 2.81% last week as investors sought safe haven from volatile stocks. Yields move opposite to prices.
-CNNMoney's Matt Egan and Jethro Mullen contributed to this story.