Europe stocks close higher led by Germany's DAX after lawmakers reportedly agree spending boost

European markets closed higher on Friday after German lawmakers reportedly came closer to agreeing on reforming the country's so-called debt brake rule.

Multiple media reports said Friday that Germany's likely next chancellor Friedrich Merz had won support from the Greens party to hike public borrowing to allow an increase in defense spending. The motion, which requires a change to the German constitution, needs backing from two-thirds of the lawmakers elected to the country's parliament.

The regional Stoxx 600 index closed 1.14% higher, with the German DAX index up by 1.86%.

The Stoxx 600 is nonetheless heading for a second straight weekly loss as regional investors monitor tumultuous developments on transatlantic trade policies.

Earlier this week, the EU announced it would retaliate to Trump's 25% tariffs on steel and aluminum with countermeasures on 26 billion euros ($28 billion) worth of goods. The EU's tariffs could take aim at clothing, alcohol and industrial goods imported from the United States.

Trump swiftly responded to the announcement with a threat to impose further levies on EU goods, threatening on Thursday to slap 200% duties on champagne and spirits originating from the bloc.

The president's latest threats toward the EU sent European shares sliding lower, with regional markets closing in negative territory on Thursday.

Elsewhere, officials from the U.S. and Russia publicly expressed "cautious optimism" toward a ceasefire agreement in Ukraine.

Corporate earnings and economic updates also came into focus for European stock traders during the final trading session of the week.

German automaker BMW closed down 0.7% after reporting a 37% decline in annual profit in 2024 in light of weakened demand from China.

Kering fell nearly 11% after announcing Demna Gvasalia as new artistic director of its ailing Gucci fashion line.

Meanwhile, official figures showed the U.K.'s economy unexpectedly shrank by 0.1% month-on-month in January. Economists polled by Reuters had expected the country's GDP to grow by 0.1%.

Overnight in Asia, stocks made broad gains, reversing course from the previous session, which saw sell-offs amid concern about the impact of a global trade war.

U.S. stocks rebounded Friday after a losing session that pulled the S&P 500 into correction territory.