* Indexes up: Dow 1.38%, S&P 500 1.15%, Nasdaq 1.38%

* CBOE Volatility Index retreats from two-week high

* Airline stocks jump as oil prices tumble

* Synopsys ( SNPS ) rallies on report of Elliott stake

(Updates with final prices, volume data)

By Sinéad Carew and Purvi Agarwal

March 23 (Reuters) - The three main U.S. stock indexes

finished Monday's session up more than 1% as oil prices fell

after President Donald Trump said he had ordered the military to

postpone strikes against Iranian power plants following

"productive conversations" with Tehran.

However, Iran's Parliamentary Speaker Mohammad Baqer Qalibaf

posted on social media that no talks had been held with the

U.S., contradicting Trump's announcement that there were talks

between the United States and Iran in the past day in which the

two sides had "major points of agreement" and that a deal could

be done soon to settle the war.

While U.S. equities fell last week, they staged a sharp

recovery on Monday after Trump's comments sent oil prices lower.

Equities had been trading lower earlier in the day after threats

of attacks on Israeli and Iranian power networks.

"You never know who to believe but it does appear that Trump

is trying to start discussions with somebody in Iran to resolve

the war despite strong denials from Iran. This has caused

significant optimism in stock prices today with the market up

strongly although off its highest levels because of the Iranian

denials," said Tim Ghriskey, senior portfolio strategist at

Ingalls & Snyder in New York.

With oil prices settling down more than 10% on Monday Wall

Street's 3 main stock indexes registered their biggest

single-day percentage gains since February 6.

The Dow Jones Industrial Average rose 631.00 points,

or 1.38%, to 46,208.47 while the S&P 500 gained 74.52

points, or 1.15%, to 6,581.00 and the Nasdaq Composite

gained 299.15 points, or 1.38%, to 21,946.76.

The CBOE Volatility Index, Wall Street's fear gauge,

retreated after earlier hitting 31.04, which its highest level

in two weeks. The index pared some losses to end down 0.63

points at 26.15.

All of the S&P 500's 11 major industry sectors advanced with

big gains in cyclical sectors such as consumer discretionary

, which finished up 2.46%, while defensive sectors were

weaker with healthcare finishing barely higher and

consumer staples closing up 0.37%.

"The volatility is likely to continue and it's all about the

price of oil. Nothing else really matters to people in the short

term. So when oil prices are down, stocks go up and vice versa,"

said Bob Doll, chief investment officer at Crossmark Global

Investments. "What's up the most today is not a surprise. It's

things with economic sensitivity."

Meanwhile, investors trimmed bets for an interest-rate hike

from the U.S. Federal Reserve to a roughly 13% probability for

December from just above 25% in the prior session, according to

CME Group's FedWatch.

Traders were betting on a roughly 72% chance that rates

would be unchanged by year end after scaling back bets for cuts

last week after the central bank struck a hawkish tone due to

concerns about higher inflation.

With that, the small-cap Russell 2000 outperformed

large-cap indexes on Monday to finish up 2.3%. On Friday, the

index, which is sensitive to higher interest rates, had ended

more than 10% below its record close of January 22, confirming

it had been in correction territory.

Shares rallied in airlines, which are hugely sensitive to

the price of oil because of jet fuel costs. Alaska Air ( ALK )

and United Airlines shares both rose more than 4% while

American Airlines added 3.66%. Shares in cruise ship

operators soared with Norwegian Cruise Line adding

more than 6% while Carnival Corp and Viking Holdings

both climbed more than 5%.

Banks, which had weakened during the conflict, gained ground

on Monday with the S&P 500 Banking index adding more

than 1% to record its biggest daily gain since February 25.

JPMorgan Chase ( JPM ) added 1.2% while Goldman Sachs ( GS )

rose 2.2%.

Investors will look forward to Fed speakers, business

activity surveys and consumer sentiment readings this week.

In individual stocks, Synopsys ( SNPS ) rallied 2.9% after

Reuters reported that activist investor Elliott Investment

Management has amasseda multibillion-dollar investment in the

electronic design automation firm.

Advancing issues outnumbered decliners by a 3.6-to-1 ratio

on the NYSE where there were 59 new highs and 109 new lows. On

the Nasdaq, 3,546 stocks rose and 1,229 fell as advancing issues

outnumbered decliners by a 2.89-to-1 ratio.

The S&P 500 posted 7 new 52-week highs and 8 new lows while

the Nasdaq Composite recorded 34 new highs and 154 new lows.

On U.S. exchanges about 20.94 billion shares changed hands

compared with the moving average of 20.68 billion for the last

20 sessions.