European stocks recovered from losses made in morning trade as markets across world witnessed volatility [AFP]

The US Federal Reserve says it will keep its benchmark interest rate at near zero at least through mid-2013 in a move that disappointed markets hoping for more direct action to aid the flagging US economy.

US stocks plunged after the statement was released on Tuesday, but rallied to close in positive.

The Dow Jones industrial average was up 429.69 points, or 3.98 per cent, at 11,239.54, based on the latest figures. The Standard & Poor's 500 Index was up 53.11 points, or 4.75 per cent, at 1,172.57.

The Nasdaq Composite Index was up 124.83 points, or 5.29 per cent, at 2,482.52.

WORLD STOCK UPDATE

US stocks
(opening figures)

DOW         | 3.98% up
NASDAQ    | 5.29% up
S&P-500    | 4.75% up

European stocks
(closing figures)

 FTSE-100  | 1.89% up
 CAC-40     | 1.63% up
 DAX          | 0.10% down

            Asian stocks
         (closing figures) 

 Nikkei-225  | 1.68% down
 KOSPI        | 3.6% down
 S&P/ASX-200|1.22% up
SSEC          |0.03% down
 Hang Seng  |5.66% down

The Fed said it would keep its existing monetary stimulus on track and offered a long two-year timeframe for rates to stay low. But it offered no new monetary initiatives.

Warning that the economy had weakened, the Fed did hold out the promise of further help down the road but did not spell out what else it might do.

"This is a lame way for the Fed to try to help the marketplace," Cary Leahey, managing director and senior economist at Decision Economics in New York, said.

"The market needs a sense that the Fed is willing to do more today, rather than merely say that they're not going to tighten in mid-2012 versus 2013. Nobody really cares.''

Timothy Duy, University of Oregon economist, called the move "weak medicine".

However, the central bank's options appeared to be limited because the current crisis is not liquidity-driven, as it was in 2008.

The Fed said US economic growth was proving considerably weaker than expected, suggesting inflation, which has already moderated recently, will remain contained for the foreseeable future.

Volatile global stocks

Earlier, stock exchanges in Europe recovered from heavy losses made in the morning trade as markets across the world witnessed volatility.

Worst hit were stock markets in the Middle East. Most Asian markets ended down, but China and Australia's markets ended a little up.

Europe's main stock markets ended days of sharp declines with London's FTSE-100 index up 1.89 per cent to 5,164.92 points, and in Paris the CAC-40 gained 1.63 per cent to 3,176.19 points.

The Asian slide followed a drop of more than six per cent on Wall Street on Monday in the first trading session since the downgrade of the United States' AAA credit rating by Standard & Poor's.

Tokyo recovered ground to close down 1.68 per cent but Hong Kong's Hang Seng finished the session down 5.66 per cent and Seoul lost lost 3.63 per cent.

Fears of a new global economic downturn, reinforced by a downgrade of the United States' credit rating last Friday and the debt crisis in the eurozone, had sent world shares down as much as 20 per cent from May's peak.

Rush for gold

Gold hit a record high on Tuesday in its biggest three-day rally since the depths of the financial crisis in 2008, as investor fears over the threat to the global economy from the European and US debt crises hit assets seen as higher risk.

Though spot prices retreated from highs as stock markets opened higher in the United States, they remained up 1.4 per cent on the day at $1,739.60 an ounce at 1342GMT, having earlier peaked at $1,778.29.

Fears that political leaders are failing to tackle debt crises in Europe and the United States boosted the Swiss franc, Japanese yen and, ironically, US Treasuries - the asset directly affected by the downgrade.

Wen Jiabao, the Chinese premier, urged nations to work together to stabilise turbulent financial markets on Tuesday.

Wen alluded to debt problems in the United States and Europe and called on "relevant" countries to implement responsible monetary policies and rein in fiscal deficits.

This is the first time Beijing has publicly commented on the shakeout unfolding in global markets after the United States lost its top-rated credit rating and as Europe's debt crisis worsens.

Source: Agencies