PARIS, March 5, 2025 (AFP) - European stock markets rebounded on Wednesday after a top US official signalled that President Donald Trump could dial down huge tariffs on Canada and Mexico this week.

The Paris stock exchange gained 1.3 percent while Milan was up 1.4 percent. London advanced 0.5 percent.

Frankfurt jumped more than two percent in opening deals, with German stocks also boosted by plans by Germany's likely next chancellor Friedrich Merz's to pour billions of euros in extra spending on defence and infrastructure.

Stock markets sank on Tuesday after US tariffs on Mexico, Canada and China came into force, triggering retaliatory measures from the three countries and raising fears the EU was Trump's next target.

US Commerce Secretary Howard Lutnick said later that he thought Trump would "work something out" with Mexico and Canada, whose goods were hit with 25 percent levies.

"Somewhere in the middle will likely be the outcome, the president moving with the Canadians and Mexicans, but not all the way," he told Fox Business channel.