NEW YORK (Reuters) - U.S. stocks rallied on Monday as fears of a global trade war ebbed with investors betting that U.S. President Donald Trump would back down on his threat to impose hefty tariffs on steel and aluminum imports.

Strategists also cited rising oil prices and ebbing concerns after an Italian election for a relief rally in the three major U.S. equity indexes.

Investors started to eye Trump’s threat as a negotiating tool after he tweeted that Canada and Mexico could avoid his proposed tariffs if they ceded ground in the North American Free Trade Agreement (NAFTA) talks.

A lack of specific retaliatory measures from other countries was also reassuring, said Mona Mahajan, U.S. investment strategist, Allianz Global Investors in New York.

“It felt like (Trump) revealed some of his cards with that Twitter comment. I don’t think it’s a coincidence that came out as the latest round of NAFTA talks were concluding,” said Mahajan. “Hopefully this becomes a non-event and we’re back to focusing on the economy and rates.”

Trump’s announcement last week of a plan to slap import tariffs of 25 percent on steel and 10 percent on aluminum caused the S&P to fall as much as 2 percent on Thursday.

Art Hogan, chief market strategist at B. Riley FBR in New York, said the administration “sees the stock market as a report card for success and markets have so far said this trade war is not a good idea.”

The Dow Jones Industrial Average .DJI rose 336.7 points, or 1.37 percent, to 24,874.76, the S&P 500 .SPX gained 29.69 points, or 1.10 percent, to 2,720.94 and the Nasdaq Composite .IXIC added 72.84 points, or 1 percent, to 7,330.71.

Investors were also watching the aftermath of Italy’s election which registered a strong showing for anti-establishment parties though with no group able to form a stable government.

“The fact we didn’t get riots in the street or a call for a Brexit-type move reassured people,” Allianz’s Mahajan said.

All 11 S&P sectors rose, and the biggest drivers were information technology .SPLRCT, which rose 0.9 percent and the financial sector .SPSY, which gained 1.4 percent. Facebook FB.O, Amazon AMZN.O, Netflix NFLX.O and JPMorgan JPM.N provided the biggest boosts from single stocks.

The energy sector .SPNY ended up 1.1 percent as oil prices rose on forecasts for robust oil demand growth and concerns output from OPEC producers would grow at a much slower pace in coming years. [O/R]

The utilities sector .SPLRCU was the biggest percentage gainer with a 1.95 percent increase followed by the financial sector's .SPSY 1.4 percent gain.

Advancing issues outnumbered declining ones on the NYSE by a 2.82-to-1 ratio; on Nasdaq, a 2.20-to-1 ratio favored advancers.

The S&P 500 posted 12 new 52-week highs and four new lows; the Nasdaq Composite recorded 113 new highs and 20 new lows.

Volume on U.S. exchanges was 6.91 billion shares, compared to the 8.3 billion average over the last 20 trading days.