Europe's stock markets gave up earlier gains Thursday after the Dow Jones index dropped nearly 100 points as a disappointing sales update from General Motors Corp. reinforced fears about the state of the global economy.
Having opened strongly in the wake of a better than expected earnings update from IBM Corp. and hopes that the U.S. government may take stakes in struggling banks, the Dow slid back into the red when GM revealed that its operations in Europe were performing badly.
GM shares dropped around 18 percent after it said its car sales in Europe fell 1.9 percent to 1.6 million vehicles in the first nine months of the year.
That weighed on the Dow, which at mid-afternoon London time, was 78.45 points, or 0.85 percent, lower at 9,179.65.
Europe's stock markets, which had traded as much as 3 percent higher, slipped back along with the Dow. Germany's DAX was 61.43 points, or 1.2 percent, lower at 4,952.19, while France's CAC-40 was up 9.39 points, or 0.3 percent, down at 3,487.50. The FTSE 100 index of leading British shares was 10.40, or 0.2 percent, lower at 4,356.29.
Despite the renewed selling, market participants stressed it was not panic selling
"A lot of people believe the bottom has been reached but that doesn't mean volatility hasn't gone away," said Howard Wheeldon, senior strategist at BGC Partners.
"The underlying fear is how much hell we have in terms of recession," he added.
At Wall Street's open, investors in the U.S. had been encouraged by the prospect that the Bush administration may take ownership stakes in certain U.S. banks as a way for dealing with a severe global credit crisis.
An administration official, who spoke on condition of anonymity because no decision has been made, said the US$700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.
The prospect of the U.S. buying stakes in banks comes the day after the British goverment pledged some 50 billion pounds to buy stakes in the country's major banks, as well as underpinning bank finances by a further 450 billion pounds (US$778 billion).
The generally positive reaction to the British rescue package has helped shares in the two most troubled banking stocks gain plenty of ground. HBOS PLC stock was up 36 percent, while Royal Bank of Scotland added 15 percent.
"Those that have underperformed the most and are likely to benefit the most from the government plan are the main beneficiaries," said BGC's Wheeldon.
It wasn't just British banking stocks doing well though. In Germany, Hypo Real Estate Holding AG, which has received a government-sponsored rescue, was up 10 percent and Commerzbank AG was 4 percent firmer.
And the news that the governments of France, Belgium and Luxembourg will give struggling lender Dexia SA a yearlong guarantee on its new loans and deposits, sent the company's shares soaring by 18 percent.
No one is taking it for granted that the banking sector is out of the woods yet on a day that Kaupthing, Iceland's largest bank, was nationalized.
"There's some cautious optimism that, though we're clearly not out of the woods yet, we're in a stronger position than we were a couple of days ago and collectively we are possibly getting somewhere," said Richard Hunter, a strategist at Hargreaves Lansdown.
Though money market rates remain elevated, Hunter thinks that the coordinated actions of policy-makers, which kicked off Wednesday with rate reductions across the world, will begin to "bear fruit" soon.
Battered Russian stocks surged Thursday to regain some of the losses suffered early in the week when the markets saw their biggest-ever one-day falls. The RTS index — widely seen as the economic benchmark — gained 10.9 percent to close at 844.7 points on Thursday. MICEX, where most of Russia' trading takes place, went up 9.8 percent at 700.4.
Asian markets were mixed overnight as investor enthusiasm over Wednesday's rate cuts around the world was tempered by ongoing fears about the strains in the credit markets and the prospect of a deep global recession, which would hit Asian exporters hard.
South Korea, Hong Kong and Taiwan followed the lead of the world's leading central banks and lowered their interest rates too.
Tokyo's benchmark Nikkei 225 index rose more than 1 percent but fell back to close down 0.5 percent to 9,157.49, a five-year low. That followed a 9.4 percent plunge Wednesday, its biggest one-day drop since the 1987 market crash.
Hong Kong's Hang Seng index gained 3.6 percent to 15,985.39, while South Korea's key index rose 0.6 percent after earlier rising as much as 2.9 percent.
Mainland China's main index fell 0.8 percent as investors continued to unload shares in banks and property firms even after its central bank lowered rates Wednesday.
In Indonesia, trading on the Jakarta Stock Exchange was canceled Thursday after the benchmark JSX index sank 10.4 percent Wednesday before trading was suspended by late morning. Authorities ordered the market to stay closed, possibly through Friday, following a late night Cabinet meeting.