US stocks have extended their recent climb, with the Dow reaching its longest daily winning streak in 13 months after the US dropped plans to impose tariffs on Mexican goods, and a couple of multibillion-dollar deals boosted the market. Mexico on Friday agreed to step up efforts to stem the flow of Central American migrants after Washington threatened to impose a five per cent import tariff on all Mexican goods starting on Monday. Among major deals, United Technologies agreed to combine its aerospace business with defence contractor Raytheon to create a new company worth about $US121 billion.

Strategists said the Mexico trade news cheered investors, leaving the S&P 500 about two per cent from its early May record high. But they noted indexes ended the session well off the day’s highs and feared investors may be trading more on hope than on reality. “All it is, is a relief rally that we don’t have tariffs with Mexico,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. But the US-China trade war is still brewing, and investors may have become too optimistic that the Federal Reserve will come to the rescue with an interest rate cut, he added. “Heaven forbid the Fed sits on its hands next week and does nothing.”

Stocks have been rallying in part on optimism that the Fed would turn more accommodative to blunt the impact of escalating trade tensions. “There is a risk that the market will be disappointed if the Fed does not signal some type of rate cut,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. The Dow Jones Industrial Average rose 78.74 points, or 0.3 per cent, to 26,062.68 on Monday, the S&P 500 gained 13.39 points, or 0.47 per cent, to 2886.73 and the Nasdaq Composite added 81.07 points, or 1.05 per cent, to 7823.17.

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