German stocks add 3.5% amid plans to overhaul debt policy and hike defense spending; Eutelsat up 109%

European stocks closed higher Wednesday amid optimism that U.S. President Donald Trump’s 25% duties on Canada and Mexico could be relaxed, and that German fiscal rules will be reformed to allow higher defense and infrastructure spending.

The Stoxx 600 index closed 1% higher, following the broad downturn in global equities on Tuesday on tariff concerns. The Stoxx autos index, which tumbled nearly 6% in the previous session, rebounded by 2.4%. Utilities and food and beverage were among the sectors in negative territory.

German stocks were the top performers regionally, with Frankfurt’s DAX index closing up 3.5%. Top gainers included construction firm Hochtief, up 15.5%, manufacturer Kion Group, up 20%, the country’s biggest lender Deutsche Bank, up 12.4%, and Siemens Energy, up 8.6%. Regional defense names also continued their recent rally, with the Stoxx Aerospace and Defense index rising 2.7%.

On Tuesday, Germany’s conservative alliance and the Social Democratic Party — the two groups expected to form the next coalition government following last month’s election — agreed to try to reform the constitutional debt brake system in order to enable defense spending in excess of 1% of GDP. Friedrich Merz, widely billed as likely to become the next chancellor of Europe’s largest economy, said they would also seek to create a 500 billion euro ($529 billion) credit-financed special infrastructure fund over ten years.

Alterations or exemptions to the debt brake system have been seen as crucial as a way to allow fiscal loosening to boost Germany’s struggling economy and increase military spending in-step with other European countries. The step remains politically contentious.

The yield on German 10-year bonds, seen as the euro zone benchmark, was 24 basis points higher at 2.723% following the news. The 2-year yield jumped 15 basis points.

The euro extended its late Tuesday gains by another 0.84% against the U.S. dollar, reaching its highest level for four months, before climbing down from those highs to trade up 0.77% against the greenback.