* Indexes up: Dow 1.80%, S&P 500 1.52%, Nasdaq 1.62%

* CBOE Volatility Index retreats from two-week high

* Banks, airlines jump amid wider market gains

* Synopsys ( SNPS ) up after Elliott takes stake

(Updates prices to late afternoon)

By Sinéad Carew and Purvi Agarwal

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

advancing more than 1% on Monday after President Donald Trump

said he had ordered the military to postpone strikes against

Iranian power plants following "productive conversations" with

Tehran.

Iran's foreign ministry refuted the claim, with a

spokesperson saying they had held no discussions with the United

States and that their conditions to end the war had not changed.

While another source told Reuters Israeli officials believed the

U.S. and Iran could hold talks this week.

Global stock indexes staged a sharp recovery after Trump's

comments, while oil prices fell, signaling improving risk

appetite. 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.

At 02:03 p.m. the Dow Jones Industrial Average

rose 820.49 points, or 1.80%, to 46,399.84, the S&P 500

gained 98.83 points, or 1.52%, to 6,605.31 and the Nasdaq

Composite gained 351.27 points, or 1.62%, to 21,998.88.

All three indexes were, so far into the session, on track

for their biggest single-day percentage gains since February 6.

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

retreated after earlier hitting its highest level in two weeks.

It was last down 1.78 points at 25.

Oil prices were down about 10%, but the energy index

was up 1.3%, gaining along with all of the S&P 500's 11 major

industry sectors. The biggest advance among the sectors was in

consumer discretionary, up 2.9% while defensive

healthcare was the slowest gainer, up 0.2%.

Ghriskey said that with hopes for a resolution of the war

"theoretically it takes the pressure off the U.S. consumer who's

been suffering from high oil prices."

After Trump's comments, investors trimmed bets for an

interest-rate hike from the U.S. Federal Reserve to a 16%

probability for December from 25% in the prior session,

according to CME Group's FedWatch.

Traders were betting on a roughly 70% 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.

The small-cap Russell 2000 was outperforming with an

advance of 2.9%. 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.

Fuel-hungry airlines jumped as the price of oil fell with

Alaska Air ( ALK ) up more than 5%, while American Airlines

and United Airlines added more than 4% each.

Cruise ship operators soared, with Norwegian Cruise Line

shares up almost 8% while Carnival Corp and

Viking Holdings rose more than 6%.

Banks, which had sold off sharply during the conflict,

inched up, with JPMorgan Chase ( JPM ) up 1.9% and Goldman Sachs ( GS )

adding 3%. The S&P 500 Banking index gained

1.8%.

Investors will look forward to Fed speakers, business

activity surveys and consumer sentiment readings this week.

In individual stocks, Synopsys ( SNPS ) gained 4.2% after

activist investor Elliott Investment Management built a

multibillion-dollar investment in the electronic design

automation firm.

Advancing issues outnumbered decliners by a 4.28-to-1 ratio

on the NYSE, where there were 48 new highs and 93 new lows. On

the Nasdaq, 3,532 stocks rose and 1,181 fell as advancing issues

outnumbered decliners by a 2.99-to-1 ratio.

The S&P 500 posted 6 new 52-week highs and 7 new lows while

the Nasdaq Composite recorded 30 new highs and 138 new lows.