(New throughout, updates prices, market activity and comments through close of U.S. trading)
By David Randall
NEW YORK, July 5 (Reuters) - Stock markets in Europe and the United States advanced on Thursday, offsetting more losses in Asia as investors were encouraged by economic data from Germany and a report that its big carmakers could be spared from U.S. tariffs.
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.
The European auto sector notched its biggest daily gains in more than two years. A further boost came from a stronger-than-expected jump in German industrial orders.
"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 181.92 points, or 0.75 percent, to 24,356.74, the S&P 500 gained 23.39 points, or 0.86 percent, to 2,736.61 and the Nasdaq Composite added 83.75 points, or 1.12 percent, to 7,586.43.
U.S. benchmarks initially gave up some gains in mid-afternoon trading after minutes from the Federal Reserve's last meeting on June 12-13 showed central bankers discussed whether trade tensions could dent the U.S. economy.
The minutes described a meeting at which the Fed raised interest rates for the second time this year. They also suggested policymakers might signal that the rate-hike 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 U.S. Treasury notes last rose 1/32 in price to yield 2.8364 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.
"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.
Nagging worry about U.S. President Donald Trump's trade tariff plans extended a slide in Asian equity markets. Chinese shares 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 but said it would "absolutely not" fire the first shot in a trade war.
MSCI's broadest index of Asia-Pacific shares outside Japan ended down 0.25 percent. Since mid-June, it has dropped every day except three.
Oil prices fell after U.S. government data showed an unexpected build in crude stockpiles. U.S. crude fell 1.5 percent to $73.03 per barrel and Brent was last at $77.71, down 0.68 percent.
Editing by Bernadette Baum, Nick Zieminski and David Gregorio