Investors have been on a roll in recent weeks on bets that governments will eventually hammer out pacts with Donald Trump ahead of the US president's August 1 deadline.
The mood has been upbeat since news that Japan had reached a deal to lower sweeping tariffs from 25 percent to 15 percent, including those on the country's crucial car sector.
The breakthrough fanned hopes that others were in the pipeline.
However, there is talk that the European Union is edging towards an agreement. Reports say Brussels could get something similar to Japan, with tariffs cut to 15 percent -- from the threatened 30 percent.
The Financial Times said the two would waive tariffs on some products, including aircraft, spirits and medical devices.
That came after US Treasury Secretary Scott Bessent said negotiations were making progress, with talks planned later in the day between the bloc's top trade negotiator and his American counterpart.
Analysts said a deal with Washington's biggest trading entity would provide a massive boost to equities
However, failure to reach a deal, triggering Trump's 30 percent levies on August 1, could cause havoc on markets, analysts warned.
France has been loudest in insisting Brussels must show it is willing to deploy its trade weapon, known as the anti-coercion instrument -- allowing officials to take measures such as import and export restrictions on goods and services.
Neil Wilson at Saxo Markets warned that would end up "effectively killing trade between the two... the nuclear option is on the table it seems, but for the moment expectation seems to be veering towards a deal".
After another record day for the S&P 500 and Nasdaq on Wall Street, Asia picked up the baton and ran.
Tokyo piled on two percent, having jumped more than three percent Wednesday on the trade deal, while Hong Kong continued its standout year with another advance.
Shanghai, Seoul, Singapore, Wellington, Taipei and Manila also rose.
Traders are also keeping an eye on developments in Tokyo after Japanese Prime Minister Shigeru Ishiba denied discussing his resignation with party elders on Wednesday, as speculation about his future intensified following a weekend election debacle.
Despite the saga, the yen extended its gains, briefly hitting 145.86 per dollar as the trade deal allows investors to turn their attention to the Bank of Japan's policy meeting next week hoping for guidance on its next interest rate hike.
The unit had been sitting around 147.90 before the deal.
Bank officials have held off rocking the boat on the issue amid tariff uncertainty, but observers say the agreement can allow them to reconsider lifting in October.
Key sources of EU-China tensions
Beijing (AFP) July 23, 2025 -
Top leaders from the European Union will visit Beijing on Thursday for talks on touchy topics from trade to the war in Ukraine.
Here are some of the sticking points in the relationship between the economic giants:
- Ukraine war -
The EU has called China an "enabler" of the Ukraine conflict due to it refusing to criticise Moscow's invasion and selling goods with both civilian and military uses to Russia.
China rejects this claim, arguing that it is a neutral party to the war that has never sold weaponry to either side.
Their differences were on show last week when the EU included some Chinese firms and financial institutions in its latest package of sanctions designed to thwart the Russian advance.
Beijing said on Monday that the sanctions would have "a serious negative impact on China-EU economic and trade relations".
Several outlets have reported that Chinese foreign minister Wang Yi told the EU's top diplomat this month that Beijing did not wish to see Russia lose the war as it feared the United States would then turn its full focus towards China.
Those comments, reported by Hong Kong's South China Morning Post and citing unnamed EU officials, would run counter to Beijing's public stance on the hostilities.
- Trade imbalance -
Brussels bristles at its yawning trade deficit with China, which stood at around $360 billion last year, according to data from the European Commission.
Although China is the EU's third-largest trade partner, the bloc describes economic ties as "critically unbalanced".
European Commission President Ursula von der Leyen has said she will demand greater market access in talks with Chinese officials on Thursday.
Beijing says Brussels needs to change its mentality and "properly handle divergences and frictions".
- EVs, clean energy -
The EU and China are also locked in a dispute over Beijing's state support for what it deems critical industries, including electric vehicles (EVs) and renewable energy technology.
Brussels argues that Chinese companies in those sectors benefit from unfair government subsidies that allow them to undercut European competitors on prices.
In October, the EU imposed extra import taxes of up to 35 percent on Chinese EV imports. It has also begun a probe into Chinese suppliers of wind turbines.
Beijing has dismissed Brussels' claims and has announced its own investigations into alleged trade distortions by EU suppliers -- from pork to brandy sellers -- widely seen as retaliatory.
It has also lodged a complaint about the EV curbs with the World Trade Organization, which said in April that it would set up a panel to assess the EU's decision.
- Rare earths -
Von der Leyen has said she and European Council President Antonio Costa will ask China to loosen export restrictions on rare earths -- crucial commodities used to manufacture electronics and other goods.
China dominates the global industry for extracting and refining rare earths.
Since April, it has required licences to export some of the strategic materials, triggering anxiety among businesses worldwide.
The European Parliament has condemned the move as "unjustified" and "intended to be coercive", and EU officials have stressed the need to diversify the bloc's supply chain.
China says it needs to control the export of rare earths as they are "dual-use" goods with potential military applications.
Beijing has proposed a "green channel" to ease the export of rare earths to the EU.
- Climate change -
The warming planet is historically an area of convergence between Brussels and Beijing, with both sides signalling a willingness to cooperate on combating climate change.
Even here, though, all is not rosy.
A top EU climate official told the Financial Times this month that Brussels would not sign a joint climate declaration with China until Beijing adopted bolder emissions reduction goals.
An editorial in the state-backed China Daily newspaper then accused the EU of playing the "climate card" to get China to change its position on the Ukraine war.
The EU aims to become carbon neutral by 2050. China -- the world's biggest greenhouse gas emitter -- has pledged to do so by 2060.
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