Factories took a beating in February from the new coronavirus, with activity in China shrinking at a record pace and U.S. manufacturing slowing, raising the prospect of a coordinated policy response by central banks to prevent a global recession.
Coronavirus is now spreading much more rapidly outside China than within the country, leading the world into uncharted territory, but the outbreak can still be contained, the World Health Organization (WHO) said.
Almost nine times as many cases were reported in the past 24 hours beyond China than inside, WHO chief Tedros Adhanom Ghebreyesus said, adding that the risk of coronavirus spreading was now very high at a "global level."
The dollar slipped to a fresh one-month low against a basket of currencies after the U.S. Federal Reserve, Bank of Japan and Bank of England all indicated a willingness to take action to confront the economic fallout from the coronavirus.
"There's a growing sense that we're going to see coordinated action by global central banks to try to offset the slowdown from the coronavirus," said Phil Flynn, an analyst at Price Futures Group.
While other data on Monday showed U.S. construction spending increased by the most in nearly two years, hitting a record high in January, the upbeat news was overshadowed by the coronavirus epidemic.
The yield on the benchmark 10-year U.S. Treasury note fell to an all-time low of 1.03%. The 10-year German bund, the benchmark for euro zone lending, slid to a six-month low of -0.67%.
Oil prices jumped more than 4%, reversing an early decline to multi year lows, as hopes of a deeper output cut by the Organization of the Petroleum Exporting Countries and central banks' policy measures countered fears of slower growth.
Equity markets rose after suffering their worst plunge last week since the depths of the 2008 financial crisis.
MSCI's broadest index of world shares <.MIWD00000PUS> rose for the first time in eight sessions, with U.S. stocks rising more than 2%. The MSCI index gained 3.06% and emerging market stocks rose 1.14%.
On Wall Street, the Dow Jones Industrial Average rose 1,293.96 points, or 5.09%, to 26,703.32. The S&P 500 gained 136.01 points, or 4.60%, to 3,090.23 and the Nasdaq Composite added 384.80 points, or 4.49%, to 8,952.17.
In Europe, shares edged higher at the close after seesawing for most of the session. The broad STOXX 600 index rose 0.09%. The FTSE 100 index closed up 1.13%.
The scale of losses last week - almost $6 trillion was wiped off world stocks - led financial markets to price in policy responses from almost every major central bank.
Traders now see a 100% chance of a half-percentage-point cut to the current 1.50%-1.75% target rate at the Fed's March 17-18 meeting, according to the CME FedWatch tool, up from no chance of large cuts last week.
The disruption to supply chains, factory output and global travel caused by the coronavirus has worsened the outlook for a world economy trying to recover from the U.S.-China trade war.
In Paris, the Organization for Economic Cooperation and Development (OECD) warned the outbreak could cause the worst global downturn since the financial crisis. In a bleak scenario, growth could drop to just 1.5%.
The OECD's outlook and the likelihood for slower growth has investors and market analysts worried that the worst is yet to come.
"Nobody knows how this is going to play out," said Ed Clissold, chief U.S. strategist at Ned Davis Research.
"There are going to be some nasty headlines in the next few weeks about people in various countries, including the United States, getting coronavirus," he said.
Companies will issue profit warnings and some economic data will look scary, Clissold said, suggesting that, despite the rally on Monday, the market has not found a bottom yet.
A Ned Davis examination of previous global health scares since 2002 showed a far lower gauge of investor sentiment, he said. An average reading was about 13, and the coronavirus reading is only 27, he said.
The epidemic, which began in the Chinese province of Hubei, has killed 3,000 people worldwide as authorities race to contain infections in Japan, Iran, Italy, South Korea and the United States.
Gold rose. The precious metals market was routed by traders liquidating their positions during a sell-off across global markets on Friday, when gold fell as much as 4.5%.
U.S. gold futures settled 1.8% higher at $1,594.80.
Oil rose after six sessions of losses for both crude benchmarks.
Brent crude futures rose $2.23 to settle at $51.90 a barrel. U.S. West Texas Intermediate (WTI) crude futures settled up $1.99 at $46.75 a barrel.
The dollar index <=USD> fell 0.409%, with the euro up 0.99% at $1.1134.
The Japanese yen weakened 0.22% versus the greenback to 108.33 per dollar.
Benchmark 10-year notes last fell 6/32 in price to yield 1.1436%.
By Herbert Lash and Marc Jones