* U.S.-China trade war spat "on hold" -Mnuchin
* M&A deals add to optimism
* GE up on deal to merge transport unit with Wabtec
* Indexes gain: Dow 1.2 pct, S&P 500 0.7 pct, Nasdaq 0.5 pct (Updates to close)
By Caroline Valetkevitch
NEW YORK May 21 (Reuters) - U.S. stocks rose on Monday and gains in industrials helped propel the Dow to a more than two-month closing high, after a truce between the United States and China calmed fears that a trade war might be imminent.
U.S. Treasury Secretary Steven Mnuchin's comments over the weekend that the two countries had put the prospect of a trade war "on hold" and agreed to hold more talks to boost U.S. exports to China boosted stocks at the opening, with the Dow Jones Industrial Average leading the charge higher.
Mnuchin said on Sunday the United States and China had agreed to drop their tariff threats, and China on Monday praised a significant dialing back of tensions.
"The big news over the weekend was that a trade war was averted, and so we had an adjustment, covering bets that there would be negative news coming out of the discussion," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "We're seeing companies that do more of their business on an international basis do well."
The S&P industrial sector advanced 1.5 percent. Boeing Co, which sells about a fourth of its commercial aircraft to Chinese customers, jumped 3.6 percent. It was the biggest percentage gainer on the Dow and lifted the blue-chip index.
The Russell 2000 rose 0.7 percent to hit a record closing high for a fourth straight session, though the index of small-cap companies underperformed large caps.
The Dow Jones Industrial Average rose 298.2 points, or 1.21 percent, to 25,013.29, the S&P 500 gained 20.04 points, or 0.74 percent, to 2,733.01, and the Nasdaq Composite added 39.70 points, or 0.54 percent, to 7,394.04.
General Electric advanced 1.9 percent. It confirmed on Monday it will merge its transportation business with rail equipment maker Wabtec, which jumped about 3.5 percent.
Not all U.S. business leaders welcomed the trade war truce, with some cautioning that Washington would find it tough to rebuild momentum to address what they see as troubling Chinese policies.
Shares of AK Steel fell 5.1 percent and U.S. Steel was down 3.8 percent following the weekend trade announcement.
Micron Technology Inc rose 3.9 percent, the most on the S&P, after the chipmaker lifted its current-quarter forecast.
The easing of the trade dispute also boosted chipmakers, whose major clients include Chinese firms, with the Philadelphia chip index gaining 1.1 percent. The technology sector rose 0.8 percent.
Tesla jumped 2.8 percent on pricing of the Model 3's fully loaded version and after brokerage Berenberg raised its already bullish price target.
Regional lender MB Financial jumped 12.9 percent after agreeing to be bought for $4.87 billion by Fifth Third Bancorp, which fell 7.9 percent.
Advancing issues outnumbered declining ones on the NYSE by a 2.43-to-1 ratio; on Nasdaq, a 1.59-to-1 ratio favored advancers.
The S&P 500 posted 33 new 52-week highs and three new lows; the Nasdaq Composite recorded 171 new highs and 33 new lows.
About 5.8 billion shares changed hands on U.S. exchanges. That compares with the 6.6 billion daily average for the past 20 trading days, according to Thomson Reuters data. (Additional reporting by Medha Singh in Bengaluru; Editing by Chizu Nomiyama and Leslie Adler)