A last-minute agreement between the US and Canada to rescue a trilateral Nafta accord with Mexico drove up global stock markets and the Canadian dollar yesterday.

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

The Dow Jones Industrial Average rose 266.92 points, or 1.01 per cent, to 26,725.23, the S&P 500 gained 20.39 points, or 0.70 per cent, to 2,934.37 and the Nasdaq Composite added 43.99 points, or 0.55 per cent, to 8,090.34.

MSCI’s gauge of stocks across the globe gained 0.34 per cent.

“The trade deal is helping risk appetite across the board, especially the Canadian dollar, and that will likely lift appetite for emerging-market currencies across the board,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The Canadian dollar was up 0.85 per cent against the dollar at a four-month high and the Mexican peso hit its highest in over seven weeks, up nearly a per cent on the day.

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

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

Shares of US carmakers rose, with Ford rising 1.6 per cent and General Motors up 1.5 per cent.

The pan-European FTSEurofirst 300 index rose 0.15 per cent, led by Italian stocks, which bounced off two-week lows hit last week.

On Friday, Italian stocks, bonds and the euro had all sold off on worries over a budget proposal from Italy’s new anti-establishment government, particularly after a report said the EU was set to reject the plan.

But such were the scale of the losses that some analysts believed the market had gone too far.

“The math just does not justify the price action we saw on Friday. Not even close!” Unicredit economist Erik Nielsen wrote in a note yesterday.

The euro was also initially hit by worries about a rise in Italy’s fiscal deficit, dropping below the $1.16 mark, but it recovered as the session progressed to trade slightly higher at $1.1612.

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 0.19 per cent lower.

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