(Recasts with preliminary close of trading)

* European stocks notch biggest percentage jump in a year

* Fed minutes reveal openness to rate hikes due to rising

inflation expectations

* Airlines, cruise operators rebound

By Stephen Culp and Purvi Agarwal

NEW YORK, April 8 (Reuters) - U.S. stocks closed sharply

higher on Wednesday after a last-minute, two-week ceasefire

agreement between the United States and Iran lifted investor

sentiment.

All three major U.S. stock indexes surged at the opening bell,

muscled higher by a broad relief rally after a deal brokered by

Pakistan resulted in a two-week suspension of the war. The

conflict, which began with joint U.S.-Israeli strikes on Iran on

February 28, has sent world markets reeling, disrupted global

oil supply and sparked fears of rising inflation.

A senior Iranian official told Reuters that the crucial

Strait of Hormuz, through which one-fifth of the world's oil is

shipped, could be reopened on Thursday or Friday ahead of peace

talks if the countries agreed upon a framework for the

ceasefire.

"It's an expected move today and there's still a lot of work

to do, but I think the market is quite relieved," said Mike

Dickson, head of portfolio management at Horizon Investments in

Charlotte, North Carolina. "The other side of this coin could

have been a lot worse and frankly there's a good reason to think

that it was possible too. So you're seeing that relief rally in

the hardest-hit areas of the market."

Economically sensitive Dow Transports touched an

all-time high, while the Russell 2000 outperformed its

larger-cap peers.

The rally was not confined to U.S. indexes. European shares

rose 3.9%, while MSCI's World index was

up over 3%. Both indexes logged their biggest one-day percentage

gains in a year.

"Most other countries were more exposed to an energy shock

and a food shock than the U.S.," said Ross Mayfield, investment

strategy analyst at Baird in Louisville, Kentucky. "So this is a

much bigger near-term relief for international stocks."

The CBOE Market Volatility index, a barometer of

investor anxiety, dipped to its lowest level since the beginning

of the war.

Front-month WTI and Brent crude futures fell

16.4% and 13.3%, respectively, both settling below $100 per

barrel.

Minutes from the U.S. Federal Reserve's March meeting,

released on Wednesday, showed a growing openness to rate hikes

as policymakers raised their 2026 inflation outlook due to

war-related oil shock.

According to preliminary data, the S&P 500 gained

166.63 points, or 2.52%, to end at 6,783.48 points, while the

Nasdaq Composite gained 620.05 points, or 2.82%, to

22,637.90. The Dow Jones Industrial Average rose 1,329.56

points, or 2.85%, to 47,914.02.

Sectors that have suffered a beating since the war began,

including commercial airlines, travel and

leisure-related stocks and homebuilders

, enjoyed robust bouncebacks.

Delta Air Lines ( DAL ) rose, despite its disappointing

second-quarter profit forecast. The commercial air carrier

declined to update its annual outlook due to uncertainties

related to the Iran war.

Delta peers Southwest Airlines ( LUV ) and United Airlines

also advanced.

Cruise operators Carnival and Norwegian Cruise Line ( NCLH )

both notched robust gains.

Levi Strauss jumped after the apparel maker raised its

annual sales and profit forecasts.