(Updates with mid-afternoon trading.)
By David Randall
NEW YORK, July 5 (Reuters) - Stock markets in Europe and the U.S. advanced on Thursday as reassuring economic data from Germany and a report that its big carmakers could be spared from U.S. tariffs offset another gloomy session for Asia.
Shares of Mercedes-maker Daimler, BMW, Porsche and Volkswagen surged as much as 5 percent after reports of a U.S. offer to suspend tariff threats on EU-made cars if the bloc lifts duties on U.S. vehicles.
That fueled wider gains, with the European auto sector enjoying its best day in more than two years. The mood was also helped by a stronger-than-expected jump in German industrial orders after four months of declines.
"With these stories coming out, you have a sector which has been very oversold meeting some potential good news on the trade war front," said Bank of America Merrill Lynch European equity strategist James Barty.
"This is going to be the dominant issue of the summer. Are we heading for a full-blown trade war? In which case, it is very bad news for risk assets. Or do we walk away from it, in which case, as we have seen today, markets are likely to rebound quite sharply."
On Wall Street, the Dow Jones Industrial Average rose 120.06 points, or 0.5 percent, to 24,294.88, the S&P 500 gained 16.33 points, or 0.60 percent, to 2,729.55 and the Nasdaq Composite added 59.42 points, or 0.79 percent, to 7,562.09.
U.S. benchmarks gave up some of their gains in mid-afternoon trading after minutes from the Federal Reserve's last meeting on June 12-13 showed that central bankers discussed whether trade tensions could dent the U.S. economy.
The minutes, which described a meeting in with the Fed raised interest rates for the second time this year, also suggested policymakers might soon signal that the Fed's rate hiking cycle was advanced enough that policy was no longer significantly affecting the economy.
"Obviously that was a hawkish meeting," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "The market's expectation always was that when we get back to neutral the Fed would stop raising rates. That's the type of statement that will spook investors knowing the Fed may tighten beyond the neutral level.
Benchmark 10-year notes last fell 1/32 in price to yield 2.84 percent.
MSCI's gauge of stocks across the globe gained 0.23 percent.
The euro briefly topped $1.17 and bond yields rose after the brighter German data and a report that the ECB thinks markets are now too cautious on when it will raise euro zone interest rates next year.
"The euro is getting a bit of a lift on the German data though the trade concerns will continue to dominate markets with the Fed minutes being the key data point," said Kenneth Broux, a currency strategist at Societe Generale in London.
Persisting concerns over U.S. President Donald Trump's trade tariff plans extended a recent slide in Asian equity markets overnight, in particular Chinese shares which are now deep into "bear" market territory.
On Friday, U.S. tariffs on $34 billion worth of Chinese imports will take effect. Beijing promised to retaliate in kind, though it said it would "absolutely not" fire the first shot in a trade war.
MSCI's broadest index of Asia-Pacific shares outside Japan , which has dropped every day except three since mid-June, ended down 0.25 percent.
In commodities, U.S. crude fell 1.97 percent to $72.68 per barrel and Brent was last at $77.39, down 1.09 percent, a day after U.S. President Donald Trump sent a tweet demanding that OPEC reduce prices for crude.
Brent had risen on Wednesday on a threat from an Iranian commander to disrupt oil shipments from neighboring states if Washington continued to press all countries to stop buying Iranian oil, and a drop in U.S. crude inventories.
Editing by Bernadette Baum and Nick Zieminski