By Sruthi Shankar

European stocks hit their highest levels since early March on Tuesday, with German stocks outperforming as carmakers rallied on hopes of stimulus and Lufthansa gained after its board approved a state bailout.

The pan-European STOXX 600 rose 1.4% to reclaim levels not seen since March 9. Traders in Germany returned from a long weekend to drive the DAX up 3.2% to its highest since March 5.

Volkswagen, Daimler and BMW gained between 5.9% and 9% on a Reuters report on Sunday that the country's Ministry of Economics had proposed a 5 billion euro buyer bonus scheme to boost car sales.

Europe's automobiles & parts index jumped 4.9%, leading gains, while insurers, real estate <.SX86P> and banking <.SX7P> rose between 2.5% and 3%.

Lufthansa surged 6.3% as its supervisory board approved a 9 billion euro ($10 billion) government bailout even as it forced the German airline to give some of its prized landing slots to rivals.

German leaders are expected to present a stimulus package on Tuesday worth 75 billion-80 billion euros ($83 billion-$89 billion) to support economic recovery after the coronavirus pandemic, according to a media report.

"Broadly firmer stock markets continue to keep market sentiment risk-on," UniCredit analysts wrote in a morning note.

"Investors swept aside a succession of negative news and focused on brighter economic prospects as more and more countries ease containment measures."

With restrictions easing across the globe, data on Tuesday suggested the worst may be over for European manufacturers. All eyes are on the European Central Bank meeting later this week, where policymakers are expected to ramp up bond purchases.

Gains across the other markets were tempered by U.S.-China tensions, with Wall Street futures coming under pressure after President Donald Trump vowed to use the military to halt protests over the death of a black man in police custody.

France's biggest private TV operator TF1 jumped 7.8% as it announced the launch of a new soccer channel 'Telefoot' along with its partner MediaPro Group.

Norway's Seadrill slid 8.2% after writing down $1.2 billion on the value of its oil drilling rigs and warning that it may have to convert a part of its $7.4 billion in debt into equity to survive.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)