|Most Asian markets ended down, but China and Australia's markets ended a little up [AFP]
It has been a volatile day on stock markets across many parts of the world, but US stocks rallied on Tuesday as investors struggled to decipher the Federal Reserve's signals on the economy.
The main US stock indexes closed in positive after the Fed's announcement that it will keep its benchmark interest rate at near zero at least through mid-2013.
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.
Earlier, stock exchanges in Europe recovered from heavy losses made in the volatile trading in the morning.
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.
In Frankfurt, the DAX ended nearly flat with a drop of 0.10 per cent to 5,917.08 points while in Madrid, the Ibex-35 slipped 0.36 per cent and in Milan, the FTSE MIB rose 0.52 per cent.
Even so, safe-haven bets were still favoured as gold hit another record and investors pushed into the Swiss franc.
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.
"It's a horrible place to be, dark days are upon us," Chris Weston, a trader with IG Markets, told the AFP news agency.
"How much further to fall is the question people are asking. People are trading on emotions at the moment rather than looking at the rational situation. There's widespread panic."
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.
"Markets are now worried about another global recession. Out of Europe, French bond yields have widened on expectation of sovereign debt downgrade because of the country's exposure to peripheral European debt," Natalie Robertson, a commodities strategist at ANZ, told Reuters.
"I think everyone was also looking at the seven per cent drop in the S&P 500. The market was very concerned over the global economy. Gold is now more expensive than platinum, and the last time this happened was back in December 2008. That's an interesting dynamic."
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.
"Market players are seeking emergency refuge and fleeing to safe assets," a trader at a major Japanese bank in Tokyo told the Reuters news agency. "In the money market, where there is heightened demand
for dollars, dollar lenders are running away."
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.
China's inflation rises
While the US downgrade was the most obvious blow to confidence, there are also concerns about China's inflation rate, which analysts fear could curb Beijing's ability to stimulate demand to offset a global slowdown.
China's inflation rose to a near 35-month high in July, and consumer prices climbed 6.5 per cent compared to same period last year as food costs surged stoking fears of further market uncertainty.
Oil prices tumbled to their lowest in almost a year to near $76 a barrel on expectations that a slowing global economy could reduce demand for fuel. The dollar was lower against the yen and the euro.
Michael McCarthy, chief strategist at Sydney-based stockbroker CMC Markets, told the Associated Press the market turbulence was due to fears that the struggling US economy was quickly losing momentum.
"We're clearly in fear territory," McCarthy said. "The major driver here seems to be weakness in the US economy. There are fears that it's starting to stall and if that's the case, the whole global growth scenario could fall over."