A pact between the United States and Canada to rescue the trilateral North American Free Trade Agreement with Mexico drove up global stock markets and the Canadian dollar on Monday, while weighing on safe-haven assets.

The newly named United States-Mexico-Canada Agreement (USMCA) announced on Sunday preserves a $1.2 trillion open-trade zone that was on the brink of collapse after nearly a quarter century.

“It is good news not only for NAFTA and North America in general, but a lot of market participants are really viewing this as a positive for future negotiations, especially with China,” said Lindsey Bell, investment strategist at CFRA Research in New York.

In currencies, the British pound rose against the US dollar after Bloomberg reported that the British government was proposing a compromise on the Irish border issue in Brexit talks.

The Dow Jones Industrial Average rose 192.9 points, or 0.73 per cent, to 26,651.21, the S&P 500 gained 10.61 points, or 0.36 per cent, to 2,924.59 and the Nasdaq Composite dropped 9.05 points, or 0.11 per cent, to 8,037.30.

MSCI's gauge of stocks across the globe gained 0.15 per cent.

Canadian dollar hits 4-month high

The Canadian dollar strengthened to a four-month high against the US dollar and the Mexican peso hit its highest level in more than seven weeks after the new trade agreement.

USMCA is aimed at bringing more jobs into the United States, with Canada and Mexico accepting more restrictive commerce with the United States, their main export partner.

It also effectively maintains the current auto sector and largely spares Canada and Mexico from the prospect of U.S. tariffs on their vehicles, although it will make it harder for global auto makers to build cars cheaply in Mexico.

Industrial stocks, and more specifically auto and rail-related shares rose. Ford Motor Co gained 0.8 per cent, while General Motors advanced 1.6 per cent. Among railroads, Kansas City Southern rose 2.9 per cent.

The industrial sector, sensitive to trade developments in recent months, was up 0.9 per cent, its sharpest gain in five weeks.

The pan-European FTSEurofirst 300 index rose 0.22 per cent. Italian stocks reversed earlier gains to close down 0.5 per cent on renewed worries about Italys budget.

Italy's deputy prime minister, Luigi Di Maio, on Monday accused European Union officials of deliberately upsetting financial markets with negative comments about the country's budget plans.

Trading volume of Italian government bonds on Friday had reached its highest level for a single day since 2011 on Tradeweb's European Government Bonds platform, the company said. Some 5.5 billion euros ($6.4 billion) were traded on the day, it said.

The euro on Monday was hit by worries about a rise in Italy's fiscal deficit, dropping below $1.16.

Also casting a shadow on markets were two surveys on Sunday that showed growth in Chinese manufacturing sputtered in September as domestic and export demand softened.

MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.22 per cent lower.

Following the trade deal, yields on US government bond yields rose as traders sold the safe-haven debt for riskier assets.

“There is a pretty significant risk-on tone following the new NAFTA agreement,” said Mike Lorizio, senior fixed income trader at Manulife Asset Management in New York.

Gold falls on increased risk appetite

Gold also dipped on the increased appetite for riskier assets. Spot gold dropped 0.3 per cent to $1,188.71 an ounce. US gold futures fell 0.31 per cent to $1,192.50 an ounce.

Oil futures jumped more than $2 a barrel, rising to levels not seen since November 2014, as US sanctions on Iran loomed and the North American trade deal was seen as fostering growth.

Brent futures settled at $84.98 a barrel, up $2.25, or 2.7 per cent. In post-settlement trade, the contract continued to strengthen, rising to $85.45 a barrel, the first trade above $85 since November 2014. U.S. light crude futures settled up $2.05 a barrel at $75.30, the highest level since November 2014.

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