(Reuters) -Tesla shares surged 10% on Monday after this year's steep decline following reports the Trump administration is likely to exclude a set of sector-specific tariffs while applying reciprocal levies on April 2.

Traders also took advantage of the near 40% decline in the stock so far this year to buy into the EV maker.

The tariff optimism set off a rally on Wall Street, with technology stocks leading the surge, pushing the three main U.S. indexes to two-week highs.

Tesla was on track to record its biggest one-day percentage jump since November 6 - when Trump won the U.S. presidential elections - if current gains hold.

The company continues to be the most valuable automaker in the world with a valuation of about $870 billion. It hit a peak market capitalization of $1.54 trillion when the stock reached a record high in December.

The stock has had a turbulent run in the first quarter of the year, battered by rising competition, weak EV demand and worries around CEO Elon Musk's political involvement taking away focus from the business.

Last Thursday, Musk urged investors to "hold onto your stock" in a late-night Tesla "all hands" meeting that was livestreamed on Musk's social media platform X.

Tesla was the most actively traded stock by retail investors, with buy orders outnumbering sell orders by a ratio of 1.9 by 11 a.m. ET, according to J.P.Morgan data.

The EV maker's shares were heavily oversold and Musk's statement last week about the company's bright future and his advice to hold onto shares kickstarted a two-day rally, said Dennis Dick, a trader at Triple D Trading with a long position in the stock.

Dick added that reports of reciprocal tariffs not being as broad as initially feared have contributed to the rally in all stocks, with Tesla benefiting from the news.

Tesla's shares trade at 85 times earnings expectations, compared with single-digit figures for automakers such as Ford and General Motors, according to data compiled by LSEG.

Tesla's Chinese competitor BYD recorded a 73% jump in fourth-quarter profit on Monday and said its annual revenue for 2024 crossed the $100 billion mark, surpassing the U.S. automaker.

"Tesla, which has been clobbered with more bad news today courtesy of record sales from its Chinese competitor BYD, was riding high at the top of the S&P gainers, with some investors possibly considering that the fall from grace may be over," Danni Hewson, head of financial analysis at AJ Bell, said.

(Reporting by Deborah Sophia, Akash Sriram and Medha Singh in Bengaluru; Editing by Shounak Dasgupta)