IT may have been Black Monday throughout Asian markets yesterday but European and United States stocks staged a remarkable turnaround overnight after a shaky start.
The Nikkei index in Japan closed at its lowest in 26 years as recession fears drove up the yen, piling the pressure on the country's exporters.
Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 - the lowest since October 1982 - with exporters like Toyota and Sony hit hard. The losses came despite a report that the government was considering a massive capital injection into struggling banks.
"Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard," said Julian Jessop, chief international economist at Capital Economics.
The US Federal Reserve is expected to cut its benchmark interest rate a half percentage point to 1 percent tomorrow.
US and European stock markets recovered much of their early losses as investors looked for bargains, although the mood in markets remains dark on fears of a global recession.
The Dow Jones industrial average rose 65.39, or 0.78 percent, to 8,444.34 in midday New York trading. Stocks were almost 1 percent lower on the open.
US stocks were also supported by a rare piece of good economic news. The Commerce Department said sales of new single-family homes rose 2.7 percent in September.
European shares were still in the red, but regained most losses they suffered early when they followed Asian markets lower.
Britain's FTSE 100 index was 0.2 percent lower at 3,875 after having been down 4.9 percent in the morning. Germany's DAX, down almost 5 percent earlier, recovered to trade only 0.5 percent lower at 4,276.
The CAC 40 in France fared worse, falling 2.1 percent at 3,126 after being almost 7 percent lower.
The euro and the pound continued to drop, with the pound 3 percent lower at US$1.5464 and the euro down 1.3 percent at US$1.2461. The euro is under pressure from fears about banks' exposure to emerging markets and expectations of interest-rate cuts.
Yesterday's stock-market falls in Asia came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate yesterday by three-quarters of a percentage point - its biggest cut on record - to prevent Asia's fourth-largest economy from lurching into recession.
The Australian central bank yesterday injected funds into its market as well.
The Shanghai Composite Index lost 6.3 percent to 1,723.35, its lowest in 25 months.
Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years and biggest daily decline since 1991.
In the Philippines, the key index fell 12.3 percent to 1,713.83 points, triggering a circuit-breaker that automatically halted trading for 15 minutes.
Only South Korea's market managed to eke out gains, in part because of the big rate cut. The benchmark Kospi ended 0.8 percent higher at 946.45.