At closing, the Dow Jones Industrial Average had risen 311.78 points or 1.21 percent.
The broader S&P 500 index was up 37.03 points or 1.3 percent, while the tech-heavy NASDAQ Composite Index rose 107.23 points or 1.39 percent by the end of trading.
Investors took heart after China‘s central bank on Tuesday steadied the yuan at a slightly stronger level than seven yuan to the dollar.
And investors may have been calmed by President Donald Trump’s remarks on Twitter: “Massive amounts of money from China and other parts of the world is [sic] pouring into the United States for reasons of safety, investment, and interest rates! We are in a very strong position…A beautiful thing to watch!”
Meanwhile, in the country’s first official response to the latest US salvo, the People’s Bank of China said it had “not used and will not use the exchange rate as a tool to deal with trade disputes”.
The central bank added on Tuesday that Washington’s currency move would “severely damage international financial order and cause chaos in financial markets”.
It also said that “China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path”.
On Monday, fears ignited that the US-China trade war could escalate into a currency war after China allowed its currency to weaken below seven yuan to the dollar, prompting the Trump administration to take the rare step of labelling China a “currency manipulator”.
“The fact that China stabilised its currency gives investors some hope that this won’t accelerate into a bigger problem,” said Rick Meckler, partner at Cherry Lane Investments.
“Any positive response by either side that suggests some willingness to negotiate is really going to be taken well by investors.”
Shares of technology companies, which have a big exposure to China, were also higher on Tuesday.
Apple Inc rose almost two percent after three days of heavy losses, while shares of semiconductor companies – Intel Corp, Advanced Micro Devices Inc and Nvidia Corp – all were up for the day.
Among other stocks, videogame publisher Take-Two Interactive Software Inc jumped nearly eight percent after raising its full-year revenue forecast.
Payments processor Mastercard Inc gained 3.03 percent after it said it would buy a majority of the corporate services businesses of European payments company Nets for about $3.19bn.
Walt Disney Co was up 2.57 percent, although shares fell in after-hours trading after its earnings were reported lower than expected.
The latest streak of losses has pulled the S&P 500 about six percent away from its all-time high hit last month.