SINGAPORE - Asian stocks rose on Thursday as investors held out hope that trade tensions could ease after US President Donald Trump exempted automakers from tariffs for a month, while the euro stood tall ahead of the European Central Bank policy meeting.

Japanese government bonds fell sharply in Asian hours after German long-dated bonds were swept up in their biggest sell-off in years as the parties in talks to form Germany's new government agreed to try to loosen fiscal rules.

Japan's 10-year government bond yield hit a near 16-year high as sentiment remained fragile.

Much of the focus in markets remains on an escalating global trade war after 25 percent tariffs on imports from Mexico and Canada were imposed on Tuesday along with fresh duties on Chinese goods, sparking fears about economic growth.

But on Wednesday, the White House said Trump will exempt automakers from his 25 percent tariffs on Canada and Mexico for one month as long as they comply with existing free trade rules.

That led US stocks sharply higher, shoring up Asian markets in early trade. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.86 percent, while Tokyo's Nikkei gained 0.8 percent.

"Obtaining any kind of reliable signal from the headlines is almost impossible," said Chris Weston, head of research at Pepperstone.

"One must truly feel for those businesses that need to plan ahead - with tariff policy changing almost daily, the ability to have any sort of confidence to make strategic decisions is currently almost impossible – this will have implications."

ECB day

Investor focus on Thursday will be on the European Central Bank meeting where it is widely expected to cut interest rates again as policymakers contend with trade war woes and a rearmament focus in the region.

The meeting comes a day after the euro jumped 1.5 percent and a selloff in German bonds as the parties in talks to form Germany's new government agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules.

German 10-year Bund futures fell 0.6 percent on Thursday, indicating a likely decline in cash bond prices later. On Wednesday, the 10-year yield , the eurozone's benchmark, climbed 30 basis points, in its biggest daily rise since mid-March 2020, at the height of the pandemic crisis.

The euro was at a four-month high of $1.0808 in early Asian hours, on course for over a 4 percent rise this week, its strongest weekly performance since March 2009.

"Is it the gamechanger that switches Germany from a drag on activity to an engine of growth? It won’t be a magic bullet, but it is definitely a step in the right direction," said Kyle Chapman, FX markets analyst at Ballinger Group.

"While Germany has plenty of space to rack up some more debt, the likes of France and Italy do not have the same privilege, and a fiscal risk premium might put the reins on a stimulus-fuelled rally."

The dollar index , which measures the US currency against six other units, eased to 104.11, touching its lowest level since early November.

In commodities, gold prices were steady at $2,924.11 per ounce as traders await the US non-farm payrolls report on Friday for cues on the Federal Reserve's policy path.

Oil prices tried to catch a break after stumbling in the previous sessions this week, undermined by a larger than expected jump in US crude stocks, OPEC+ plans to increase output, and US tariffs on key oil supplies.

Brent futures hovered close to an over three-year low it touched on Wednesday.