After crunch talks with European Commission President Jean-Claude Juncker, Mr Trump said both sides had agreed to “work together towards zero tariffs”.
And he announced the EU had agreed to ease restrictions on American exports of liquefied natural gas and soybeans to Europe.
Meanwhile, Mr Juncker also claimed victory, saying a pledge by the US to hold off on tariffs against cars built in the EU was a “major concession”.
Dow Jones Industrial Average rose 172.16 points, or 0.68 percent, following the talks, while the tech-heavy Nasdaq added 91.47 points, or 1.17 percent.
READ MORE: Juncker takes swipe at Trump just MINUTES after Rose Garden press conference
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MSCI’s gauge of stocks across the globe gained 0.53 percent after earlier flirting with losses.
Following talks at the White House, the pair appeared in the famous Rose Garden to announce the “launch a new phase in the relationship between the United States and EU”.
Mr Trump said trade between the two sides would now be “more reciprocal”.
The US and European Union have been embroiled in a tit-for-tat trade war in recent weeks which began after Mr Trump imposed tariffs on steel and aluminium imports.
In response, Brussels announced taxes on American-made products including jeans, bourbon and motorcycles.
Mr Trump had threatened to widen the trade war by slapping levies on cars made in the European Union – a move which would have hit Germany’s economy particularly hard.
But following today’s talks, the former reality TV star said the two sides had agreed to “resolve the steel and aluminium tariff issues”.
Germany’s trade minister Peter Altmaier welcomed the “breakthrough” deal, tweeting the agreement “can avoid trade war and save millions of jobs! Great for global economy”.
A senior EU official said: “This is a big day for the Commission, it’s a big day for Juncker.
“The imminent sanctions and everything that could have happened unilaterally is off now.
The official added: ”We have a system engaging them in dialogue, not confrontationally.
“For as long as the dialogue continues we can make this win-win.”
Thomas Simons, money market economist at Jefferies & Co, said: “Trade war type headlines have been the biggest driver of market sentiment – both for Treasuries and stocks – for quite a while now.
“This is the first time we’ve gotten good news.”