A major concern is how high levels of government debt in the eurozone will affect the banking sector [EPA]

Europe's main stock markets were steady at the start of trading on Tuesday following earlier losses on Asian markets.

However, another day of volatility was expected with a major concern being how high levels of government debt in the eurozone will affect the banking sector.

London's FTSE 100 index of top shares edged up 0.12 per cent to 5,108.40 points on opening. Frankfurt's DAX 30 index rose 0.53 per cent to 5,273.67 points and in Paris the CAC 40 dipped rose 0.14 per cent to 3,004.

Earlier, Japan's Nikkei 225 index fell 2.2 per cent to a two-year low, while Hong Kong's Hang Seng shed 0.33 per cent and Sydney closed down 1.6 per cent.

The falls in Asia extended selling from Monday after a dismal batch of US jobs data raised concerns of a double-dip recession in the world's biggest economy.

Shares in UK and European banks plunged on Monday after several institutions were named in a US lawsuit on Friday over the sale of risky home loans to US housing agencies Fannie Mae and Freddie Mac.

Banks named in the lawsuit included Royal Bank of Scotland, Barclays, Deutsche Bank and Credit Suisse.

"Today's lead is coming from the appalling session that was seen in European trade," said IG Markets analyst Ben Potter.

Data out last week showed that no new jobs were added to the US economy in August.

To make matters worse, the White House warned that the unemployment rate in the US is likely to stay around nine per cent untill the end of 2012.

"The market will continue to tread water this week until we get more details from US President Barack Obama to stabilise labour sector," said Kim Byung-youn of Woori Investment & Securities.

Obama is scheduled to deliver a key speech on September 8 to outline his much anticipated jobs creation plan.

European concerns

Massive losses in Europe were recorded on Monday, where financial markets were heavily hit after International Monetary Fund chief Christine Lagarde said that banks needed extra capital to withstand any contagion from the eurozone debt crisis.

Jean-Claude Trichet, the head of the European Central Bank, also warned on Monday of an immediate and imperative need for enactment of a second debt rescue for Greece, and tightened discipline in the management of eurozone economies.

London's FTSE 100 dropped 3.58 per cent, in Paris, the CAC 40 fell 4.73 per cent and Frankfurt's DAX dived 5.28 per cent to a two-year low.

US markets were closed on Monday for the Labour Day bank holiday.

Source: Agencies