EUROPE'S main stock markets have rebounded after the recent slump that was sparked by concern about a Chinese credit crunch fears and the withdrawal of US economic stimulus, dealers say.
Asian shares meanwhile mostly fell on Tuesday on the back of growing concerns about a liquidity crisis in China, although the Shanghai market managed to claw back some ground after sinking more than five per cent.
In late morning deals, London's benchmark FTSE 100 index jumped 0.98 per cent to 6,088.23 points, Frankfurt's DAX 30 advanced 1.49 per cent to 7,806.80 points and in Paris the CAC 40 gained 1.43 per cent to 3,646.81.
On bond markets, yields on European and US bonds fell after recent sharp rises which reflected an increase in risk aversion because of the prospect that the Fed will curtail its easy-money measures.
European shares had tumbled on Monday, hit by concern over the emergence of a liquidity crisis in China and after the US Federal Reserve signalled last week that it would withdraw its bond-buying program known as quantitative easing.
"It does look as if we've seen an end to the selling for now, perhaps the shock of last week's Fed and the Chinese tightening news has lost its edge," IG analyst Chris Beauchamp told AFP.
"That said, any move to the upside is probably going to be fairly short-lived.
"The change in Fed policy will take longer than a week to really sink in, and there will be some expectation that Bernanke will change course once he realises what havoc he has wrought. I think the volatility will persist throughout the summer."
In foreign exchange deals on Tuesday, the European single currency firmed to $US1.3131 from $US1.3122 in New York late on Monday.
On the London Bullion Market, the price of gold eased to $US1,286.08 an ounce from $US1,286.75.
The focus in Asia was on China, where investors have been spooked by a cash crunch in the financial system that has raised fears banks will cut back on loans, which could in turn drag on the nation's powerhouse economy.
The central People's Bank of China (PBoC) added to those worries on Monday when it ruled out providing any fresh money to bolster markets and ordered lenders to get their own houses in order.
In response, Tokyo stocks fell 0.72 per cent, Seoul lost 1.02 per cent and Sydney slipped 0.28 per cent in value.
And Shanghai finished 0.19 per cent lower, with bargain-hunting helping it bounce from a second successive fall of more than five per cent earlier in the day.
"We have had a decent turnaround in European share markets on Tuesday, pulled up by a late recovery in Asian markets after the Chinese central bank attempted to assuage recent market fears about the soaring cost of funding Chinese banks," added ETX Capital strategist Ishaq Siddiqi in London.
"The Shanghai index fell over five per cent during overnight trade but pared losses ... as investors demonstrated their fears that a lack of intervention by the PBoC will keep tensions in the Chinese interbank money market leading to a liquidity squeeze which will hamper the country's growth prospects.
"China's central bank responded by saying liquidity is ample, under supervision and volatility is temporary, buoying the market," added Siddiqi.
Hong Kong stocks added 0.21 per cent, reversing earlier losses.
Wall Street provided a negative lead on Monday, with the three main indices ending well down, hit also by concerns about the Chinese economy, but losses were capped as US Treasury yields retreated.
The Dow fell 0.94 per cent, the S&P 500 tumbled 1.21 per cent and the Nasdaq shed 1.09 per cent Europe's main stock markets have slumped further, hit by concern over the emergence of a liquidity crisis in China and the withdrawal of US Federal Reserve stimulus, dealers said.
