European stocks opened higher on Wednesday amid optimism that U.S. President Donald Trump's 25% tariffs on Canada and Mexico could be eased, with investors also eyeing potential reforms to Germany's controversial debt brake system.

The Stoxx 600 index rose 1.05% shortly after the open, following a broad decline in global equities on Tuesday on tariff concerns. The Stoxx autos index, which had fallen nearly 6% in the previous session, rebounded 2.4%. Utilities and food and beverages were among the sectors in the red.

On Tuesday, the conservative alliance and the Social Democrats — the two groups expected to form the next coalition government after last month's election — agreed to try to reform the constitutional debt brake system to allow defense spending to exceed 1% of GDP. Friedrich Merz, widely tipped as the next chancellor of Europe's largest economy, said they would also seek to create a special credit-financed infrastructure fund worth 500 billion euros ($529 billion) over 10 years.

Changes or waivers to the debt brake system are seen as crucial as a way to allow fiscal easing to boost Germany's struggling economy and boost military spending. The move remains politically controversial.

The yield on Germany's 10-year Treasury note, considered the euro zone benchmark, jumped more than 21 basis points to 2.697% at 7:59 a.m. London time. The 2-year yield was 14 basis points higher.

The euro extended its rally late Tuesday, up 0.47% against the U.S. dollar.

"At this stage, it looks like Germany will run a budget deficit comfortably above 3% of GDP for the next few years rather than keeping the deficit around 2.5% as we previously assumed," Andrew Kenningham, chief European economist at Capital Economics, said in a note Tuesday.

He said Germany's announcement showed Merz was "ready to act decisively" on the economy, but the extra borrowing that would be needed to finance the extra spending would put upward pressure on Bund yields.

Britain's FTSE 100 index is expected to open Wednesday up 56 points at 8,806, Germany's DAX up 416 points at 22,733, France's CAC up 146 points at 8,176 and Italy's FTSE MIB up 403 points at 38,282, according to data from IG.

The imposition of new U.S. tariffs has shaken global market sentiment amid concerns that the tariffs will reignite inflation and escalate the global trade war.

Wall Street has been on a two-day losing streak as 25% tariffs on Canada and Mexico come into effect on Tuesday, as well as additional 10% duties on Chinese goods. All three countries have announced retaliatory measures. (Newsmaker23)

Source: CNBC