(Reuters) -European shares climbed to record highs on Wednesday, powered by strong gains in French and Spanish stocks, and steelmakers rallied after the EU unveiled plans to slash steel import quotas.

The pan-European STOXX 600 was up 0.8%, closing at its highest level, while French stocks jumped 1.1% and Spanish stocks touched their highest mark since 2007.

Germany's DAX closed at a near three-month high.

Banks were the biggest boost to the STOXX 600, adding over 1%. British lender Lloyds rose after the UK's financial watchdog proposed a smaller-than-expected compensation package over motor finance mis-selling, easing investor concerns.

Societe Generale and Italy's BPER Banca also joined the rally, fuelling broad gains across the sector.

STEELMAKERS SURGE

Steelmakers surged higher after the European Commission proposed slashing tariff-free steel import quotas by nearly half, sending shares of ArcelorMittal, Aperam, Thyssenkrupp and SSAB up between 4% and 7%. The broader basic resources index rose 1.9%.

In contrast, BMW tumbled 8.2% after the carmaker cut its 2025 earnings forecast due to changed U.S. tariff assumptions and weaker-than-expected growth in the Chinese market.

Rival Mercedes fell 2.9%, while the broader autos index eased 2.1%.

France's political uncertainty remained centre stage, as caretaker Prime Minister Sebastien Lecornu struck a cautiously optimistic tone, suggesting a budget deal could be reached by year-end - potentially averting a snap election.

French mid-caps rose 0.7%, echoing gains in blue-chips, after markets slumped earlier this week following Lecornu's abrupt resignation on Monday.

The French benchmark remains one of Europe's laggards in 2025, up just 9% year-to-date, trailing double-digit rallies across most major bourses.

"The general view among clients was an expectation of new legislative elections in the coming week, but little chance of France's budget deficit returning to levels below 3% GDP before 2030 and little hope of relief for the French bond market for now," said Olivier Korber, a strategist at Societe Generale.

Technology stocks fell 0.6%, with chip-related companies ASML and ASMI leading declines after U.S. lawmakers called for broader bans on sales of chipmaking equipment to China.

On the macro front, Germany's economy ministry nudged up its 2025 growth forecast on Wednesday, now expecting a modest 0.2% expansion, up from zero, citing signs of a gradual recovery.

Among other stocks, Puma rose 6.8% after BofA Global Research raised its rating on the German sportswear group to "neutral" from "underperform".

Umicore climbed 5.5% after the Belgian metal recycling group said it plans to sell its permanent gold inventories for about 410 million euros ($476 million).

Unite Group fell 10.7% after the British student accommodation developer reported softer rental growth in the third quarter.

(Reporting by Shashwat Chauhan and Pranav Kashyap in Bengaluru and Amir Orusov in Gdansk; Editing by Saumyadeb Chakrabarty, Sonia Cheema and Ed Osmond)

By Shashwat Chauhan, Amir Orusov and Pranav Kashyap