U.S. Commerce Secretary Wilbur Ross said the investigation was a response to Chinese exports of steel reaching 26 percent of the U.S. market.
At a White House meeting that included executives of several U.S. steel companies, Trump signed a directive asking for a speedy probe under section 232 of the Trade Expansion Act of 1962. The law allows the president to impose restrictions on imports for reasons of national security.
The S&P 1500 steel index <.SPCOMSTEEL> shot up 5.2 percent, its biggest daily percentage gain since Nov. 22, as the rally accelerated after the midday signing of the executive order.
Steel shares had surged after the Nov. 8 U.S. election on optimism over increased infrastructure spending under Trump, but the steel index had been drifting lower since February.
Investors in recent months have begun to question how soon Trump's pro-growth policies might be implemented, while steel analysts said declining iron ore prices and other factors have weighed on industry shares.
Shares of Steel Dynamics (>> Steel Dynamics, Inc.), which posted results late Wednesday, were up 6.8 percent, while Nucor (>> Nucor Corporation), which reported early Thursday, rose 4.7 percent.
Shares of AK Steel (>> AK Steel Holding Corporation) jumped 8.6 percent while U.S. Steel (>> United States Steel Corporation) rose 7.4 percent.
More stable iron ore prices and earnings might have also boosted the sector, though the Trump administration's news likely served as a "symbolic positive," said Phil Gibbs, equity research analyst, KeyBanc Capital Markets.
"People took it to be a positive because (while) the last couple of trade cases maybe didn't go the side of U.S. producers, there still is some support from the government for this industry and ... the group had been a sizable underperformer through most of the last two months."
Over the long haul, China will remain a crucial factor in steel prices, he added.
Investors who had shorted the stocks also could have been covering their positions, Gibbs said.
Total global short interest in steel shares as of Wednesday was $8.1 billion, up $128 million, or 1.54 percent, over the prior 30 days, according to S3 Partners, a financial analytics firm.
The U.S. statute has been used to restrict imported oil, while former President George W. Bush attempted to slap tariffs on steel imports in 2002 under a different means, according to a research note from Height Securities.
(Reporting by Caroline Valetkevitch; editing by Nick Zieminski and Richard Chang)
By Caroline Valetkevitch