European shares bounced back on Wednesday after their worst day in more than six months as German leaders agreed to loosen the country's so-called debt brake.

Germany's blue-chip index jumped 2.6% as of 0811 GMT to trade near a record high.

The pan-European STOXX 600 index was up 1.1%. The benchmark index logged its worst day since August 2024 on Tuesday as U.S. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect.

The parties hoping to form Germany's next government agreed to create a 500 billion euro ($534 billion) infrastructure fund and loosen fiscal rules to boost defence spending and revitalise growth.

Germany's 10-year benchmark yield jumped 20 basis points to 2.680%.

The country's construction firms and arms makers jumped. Cement maker Heidelberg Materials rose 7.8%, industrial services provider Bilfinger jumped 11.7% and construction group Hochtief advanced 7.6%.

Defence stocks Rheinmetall and Renk were up between 1.3% and 5.5%, respectively.

The index of European banks led the sectoral gains, rising about 4%.

In other stocks, Adidas fell 3.3% after the sport retailer forecast sales growth slowing slightly to up to 10% in 2025.

($1 = 0.9360 euros)

(Reporting by Nikhil Sharma; Editing by Mrigank Dhaniwala)