European stocks rose on Thursday following extraordinary gains in Asia and the United States, as exuberance shot through markets and reversed initial dives in reaction to Donald Trump's U.S. presidential victory.

Investors focused on Trump's priorities -including tax cuts and higher infrastructure and defense spending, along with bank deregulation - and set aside for the moment longer-term worries about whether he will slap punitive tariffs on Chinese and Mexican exports, risking a global trade war.

European stocks hit a two-week high, with the pan-European STOXX 600 index up 1.3 percent in early dealings, and "safe haven* government bonds sold off after Trump suggested he would spend billions on infrastructure.

This marked an abrupt change from the sharp recoil on markets on Wednesday after the Republican candidate's triumph.

Investors saw signs that Trump will ditch the budget austerity policies that Western governments have pursued since the 2008 global financial crisis after he takes over in January.

"Trump's speech following the victory was hugely influential in yesterday's sudden U-turn, as he focused more on unity and the need to spend to get the economy growing again. These policies combined with his desire to deregulate and lower taxes are all very market-friendly," said Craig Erlam, senior market analyst at OANDA.

"The stance he takes on trade will likely determine how vulnerable the markets are, but in reality these are very long-term policies and for now, markets are more focused on the prospect of lower taxes, fiscal stimulus and less regulation.”

The three major US stock indexes rose on Tuesday and the dollar index against major currencies recovered from a trough

of 95.885 plumbed on Wednesday to around 98.778 on Wednesday morning.

In a remarkable session for Japanese shares, the Nikkei jumped 7 percent at one point after sinking 5 percent on Wednesday.

Cains in Europe, where markets had already started to recover on Wednesday, were more modest. Britain's ETSE was up 0.95 percent, Germany's DAX rose 1.12 percent and France's CAC was up 1.06 percent by 0415 ET.

The moves were led by Wednesday’s sharp rises in US Treasury yields. The 30-year Treasury bond yield gained almost 25 basis points in its sharpest rise in more than five years; yields on the 10-year note climbed 21 basis points to breach the 2 percent mark for the first time since January.

High-rated euro zone bond yields -which had sunk early Wednesday - rose

sharply on Thursday, with the region's benchmark German 10-year bonds up 5 basis points to 0.23 percent, the highest level since May.

Trump's victory and opening comments have sharpened a debate about the austerity consensus that has prevailed across most of the developed world since the financial crisis.

If his actions match his rhetoric, it seems likely that Trump's administration will test the theory of whether central banks' cuts in interest rates to ultra-low levels and money printing should be replaced by budget measures to boost the world economy.

"It looks like Trump will aim for a more fiscally accommodative policy at a time when they seems to be a shift in major economies towards fiscal policies,' said Investec economist Philip Shaw.

"The big unknown is how the rest of the Republican party to react to this, as there

are many fiscal hawks among them.’

Ratings agency S&P Global on Tuesday affirmed the AA+ credit rating oftheUnited States, but noted uncertainty over the future path of government debt would prevent any upgrade.

There were also lingering concerns about Trump's campaign promises to shield American jobs through possible protectionist trade policies.

Among Asia's trade-reliant economies, China and South Korea are particularly exposed to any hostile US measures as they run large trade surpluses with the United States, Credit Suisse said in a research note.

Mexico's peso trimmed losses but was still within reach of a life-time low seen overnight.

"Trump's protectionist policies may prove another big step back in the gradual unwinding of goods globalization that has defined the past 30 years,’ wrote analysts at Nomura.

They also cited the US role in post-war global security.

"Another important factor is that a Trump presidency would bring with it uncertainty that could undermine the Pax Americana, with all the benefits this has brought to the world in general and, perhaps, Asia in particular since 1945."

For now, investors seemed willing to give the president-elect the benefit of the doubt, as witnessed by a broad advance in bulk commodity prices.

Copper rose to a near 16-month high on expectations that a Trump presidency could unleash a flood of infrastructure spending. Iron ore surged to its highest since January 2015.

Brent crude oil added to overnight gains made on the post-U.S. election surge in global markets, rising 0.22 percent to $46.46 a barrel.

Safe-haven gold pulled back sharply to $1,284.59 an ounce after rising to as high as $ 1,337.40 on Wednesday.