U.S. stocks rallied Monday but gave back some early gains as small-caps and technology shares led the way amid the resumption of trade talks with China. The dollar fell to its lowest level since October and Treasury yields ticked higher with traders assessing the seemingly dovish remarks from Federal Reserve chairman Jerome Powell on Friday.

All major U.S. equity benchmarks ended higher. The S&P 500 Index added 0.7 per cent after rising as much as 1.4 per cent earlier in the session on strength in retailers, automakers and clothing companies. Amazon.com Inc. jumped 3.4 per cent, pushing its market cap to US$796.8 billion. It surpassed Microsoft Corp. as the most valuable company after the software firm only edged higher by 0.1 per cent for a value of US$788.9 billion

The biggest jump among major gauges came from the small-capitalization Russell 2000 Index, which picked up 1.8 per cent. Meanwhile, the Nasdaq benchmarks rose more than 1 per cent with telecommunications services and semiconductor shares pacing gains, giving the Nasdaq 100 Index its first back-to-back 1 per cent gains since November.

“What you really, really want to see, are things like the Russell 2000 outperforming -- and it is massively right now,” said Michael Antonelli, equity sales trader at Robert W. Baird. “You want to see the risky, risky stuff bouncing hard.”The Stoxx Europe 600 Index was higher for a second consecutive session.

Despite the enthusiasm, investors remain in a quandary after the wild end to 2018 in which the S&P 500 lost more than 9 per cent in a month. Powell’s soothing comments on Friday and China’s moves to shore up its economy lifted sentiment somewhat, sending the S&P 500 up 1.9 per cent last week, but risks remain. And U.S. lawmakers are still unable to reach agreement on a budget, leaving the federal government shut down for a third week.

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“We have a respectable probability that Friday’s rally and the last week-and-a-half’s rally has more legs behind it,” said David Sowerby, managing director and portfolio manager at the investment firm Ancora, which manages US$6.9 billion. “It’s Fed policy right now, that’s first and foremost the most important gauge impacting the market today. Trade issues, number two. A very distant number three is the government shutdown.”

Fresh trade talks between the U.S. and China helped sap demand for the greenback, while Treasuries slipped after a substantial retreat on Friday. The pound slid against the euro as U.K. lawmakers sought to avoid a no-deal Brexit. The common currency remained solidly up even as data showed German factory orders fell more than expected in November.

Elsewhere, emerging-market shares jumped, and the Indonesian rupiah led gains in major developing-nation currencies. Oil rose to the highest in three weeks, and gold climbed after China reported increased holdings.

Here are some events investors may focus on this week:

A U.S. delegation is in Beijing for trade talks with Chinese officials, the first face-to-face encounter since Trump and Xi agreed to a temporary truce on Dec. 1. Wednesday sees the release of minutes from the Fed’s Dec. 18-19 policy meeting. Powell will speak to the Economic Club of Washington D.C. on Thursday. U.K. Parliament resumes a debate on the Brexit withdrawal bill, with Prime Minister Theresa May seeking to avoid defeat in a vote set for the week of Jan. 14

These are the main moves in markets:

Stocks

The S&P 500 rose 0.7 per cent to 2,548.71, while the Russell 2000 climbed 1.8 per cent and Nasdaq 100 gained 1 per cent. The Stoxx Europe 600 Index added 0.4 per cent. The MSCI All-Country World Index increased 0.9 per cent. The MSCI Emerging Market Index advanced 1.3 per cent.

Currencies

The Bloomberg Dollar Spot Index declined 0.4 per cent to the lowest since October. The euro gained 0.7 per cent to US$1.1475, the most in more than a week. The Japanese yen slipped 0.2 per cent to 108.72 per dollar. The British pound increased 0.4 per cent to US$1.2768, the strongest in a month. The MSCI Emerging Markets Currency Index advanced 0.3 per cent to the highest since July.

Bonds

The yield on 10-year Treasuries gained two basis points to 2.6924 per cent. Germany’s 10-year yield rose one basis point to 0.221 per cent. Britain’s 10-year yield fell two basis points to 1.254 per cent.

Commodities

The Bloomberg Commodity Index climbed 0.3 per cent. West Texas Intermediate crude advanced 1.5 per cent to US$48.66 a barrel, the highest in three weeks on its sixth consecutive gain. Gold rose 0.2 per cent to US$1,288.94 an ounce.