Updates to Asia afternoon

By Stella Qiu

SYDNEY, July 23 (Reuters) - Japanese shares surged to a one-year high on Wednesday as the country struck a trade deal with the United States that lowers tariffs on its autos, while also reviving hopes for a EU-US agreement that boosted European stock futures.

President Donald Trump late on Tuesday said a trade deal with Tokyo will include Japan paying a lower 15% tariff on shipments to the U.S. It followed an agreement with the Philippines that will see the U.S. collect a 19% tariff rate on imports from there.

Trump also said representatives from the European Union were coming for trade negotiations on Wednesday. That stirred hopes for a deal with Europe, as markets were worried about broader EU countermeasures amid receding hopes of a deal with Washington.

EUROSTOXX 50 futures STXEc1 rose 1%, while Wall Street futures NQc1, ESc1 were up about 0.1%.

"Expectations for a breakthrough (on the U.S.-Japan talks) were low, so Trump’s announcement delivers a mild upside surprise — providing near-term relief for Japanese equities," said Charu Chanana, chief investment strategist at Saxo.

"Strategically, the deal allows Japan to sidestep immediate tariff escalation, while Trump's attention shifts elsewhere."

Japan's Nikkei .N225 climbed over 3% as shares of automakers surged on news the deal would also lower the auto tariff to 15%, from a proposed 25%. Mazda Motor 7261.T rallied 17% while Toyota Motor 7203.T jumped 13.6%.

South Korean automakers also jumped as the Japan deal fuelled optimism over potential progress in tariff negotiations between South Korea and the United States.

Japanese government bonds slid, with the yields for 10-year JGBs JP10YTN=JBTC up a whopping 8.5 basis point at 1.585%, while the reaction in the yen was more muted, trading slightly weaker at 146.99 per dollar.

Investors took in stride a media report that Japanese Prime Minister Shigeru Ishiba would step down by the end of August. Ishiba has been facing growing opposition from within his party for his vow to stay in power despite the ruling coalition's defeat in Sunday's upper house election.

Saxo's Chanana said Ishiba's departure removes a source of political fragility and sets the stage for leadership more aligned with pro-market policies and closer U.S. ties.

"His exit is also seen as clearing a path for continuity in Japan’s accommodative fiscal and monetary stance."

In another positive development, U.S. and Chinese officials will meet in Stockholm next week to discuss an extension to the August 12 deadline for negotiating a trade deal, Treasury Secretary Scott Bessent said.

Chinese blue-chips .CSI300 rose 0.46% and Hong Kong's Hang Seng index .HSI gained 0.7%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 0.8%.

Overnight, Wall Street closed mixed as investors assessed a spate of earnings that pointed to signs that Trump's trade war is hitting corporate profit margins. General Motors GM.N tumbled 8.1% after the automaker reported a $1 billion hit from tariffs to its quarterly results.

Investors are now waiting for results from Tesla TSLA.O and Google's parent Alphabet GOOGL.O - the Magnificent 7 stocks that have driven much of the market rally fuelled by AI optimism.

In the foreign exchange market, moves were muted with the dollar holding onto overnight losses along with lower Treasury yields. The dollar =USD index was flat at 97.45, having slipped 0.4% overnight for its third straight day of declines.

The euro EUR=EBS dipped 0.1% to $1.1739 after rising 0.5% overnight.

Benchmark 10-year U.S. Treasury yields US10YT=RR ticked up 2 basis points to 4.3559%, after slipping 3 bps overnight, as Trump continued to lash out at Federal Reserve Chair Jerome Powell for not cutting interest rates, although Bessent said there was no need for him to step down immediately.

Bessent did say the Fed's vital independence on monetary policy is threatened by its "mandate creep" into non-policy areas and he called on the U.S. central bank to conduct an exhaustive review of those operations.

Oil prices gained a little. U.S. crude CLc1 rose 0.4% to $65.60 per barrel, while Brent LCOc1 was at $68.88 per barrel, up 0.4%.

Spot gold prices XAU= were steady at $3,429 an ounce.

(Reporting by Stella QiuEditing by Shri Navaratnam and Kim Coghill)

((yifan.qiu@thomsonreuters.com))

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