By Joe Stonor

Germany's DAX index is on track to close at its first record high since January due to a fresh government reform package, supportive U.S. jobs data and positive company-specific news.

The DAX was up 2.3% in afternoon European trade at 25609.15 points, on pace to beat its Jan. 13 record close of 25420.66. German equities continue to lag global peers, however. The index is up 4.6% so far this year--well shy of the 10% added by the S&P 500 over the same period.

The index notched a string of record closes at the beginning of 2026 as enthusiasm grew around the impact German fiscal spending on the economy. However, jitters around domestic manufacturing orders, software stocks and then inflation caused by the U.S.-Iran war combined to hobble investor enthusiasm.

Several factors combined to push the index above its previous high. Cooler-than-expected U.S. non-farm payroll data eased fears of sharp Federal Reserve rate hikes later this year. The print boosted global market sentiment, helping Spain's IBEX 35, Switzerland's SMI index, and the Europe-wide Stoxx 600 to trade at their own new highs, as well as spurring the already-higher DAX above its previous record.

Earlier Thursday, Chancellor Friedrich Merz's coalition outlined a raft of reforms impacting taxation, labor rules and trade policy. As well as tax relief for middle-income earners, pension reforms will set up a Swedish-style pension fund while gradually raising the retirement age.

"This should bode well for sentiment and dovetails with our forecast that growth will pick up in the second half of the year," Deutsche Bank senior economist Marion Muhlberge said.

The latest package builds on a flurry of reform proposals from the Merz coalition. Revamped industrial policy promises to speed up planning applications, boost domestic manufacturing and to more quickly expand the country's electricity grid. A state-run fund will be pivotal to have a greater focus on investing in strategic industries.

"The approach feels broad and urgent," J.P. Morgan analyst Greg Fuzesi wrote in a note to clients.

At a single-stock level, pharmaceuticals company Bayer jumped 8% to a three-year high as it continued to benefit from a Supreme Court ruling last week drawing a line under potentially damaging litigation relating to its weedkiller Roundup. Analysts at Deutsche Bank lifted their recommendation on the company from hold to buy early Thursday.

Shares in SAP--the second most valuable company in the DAX--rose 1% after the company said it would cut spending on hiring and travel expenses to pour more resources into artificial intelligence.

Deutsche Bank shares jumped 6.45% after the company reached an agreement with trade unions over collective bargaining in its Postbank subsidiary, while defense giant Rheinmetall extended a recent rally to rise 6.1%.

The government's reforms aren't a silver bullet, ING analyst Carsten Brzeski wrote in a note, pointing to the need for affordable energy and corporation tax reform.

"Still, today's reform package is finally a clear sign that Germany is at last moving. A departure away from moaning and analyzing, towards tangible action."

Write to Joe Stonor at josephmichael.stonor@wsj.com