Stemming the tide

European stocks tumbled over 3 percent to a 14-month low as investors worry about another recession in the United States and fears the eurozone debt crisis could spread to Italy and Spain. But bluechip indices recovered slightly in afternoon trading, after better-than-expected employment data from the US.

The world's largest economy added 117,000 jobs in July, more than the 85,000 economists had predicted. The figures for May and June were also revised upwards.

It came as Europe's economic heavyweights France and Germany prepared to hold talks with fiscally strapped Spain on Friday.

Earlier in the day, Frankfurt's DAX index of leading shares dropped as far as 3.2 percent while London and Paris were down 3 percent, Milan slumped 3.5 percent and Madrid shed 2.4 percent.

Asian stock markets also tumbled early on Friday after a panic on Wall Street led to the worst sell-off since the global financial crisis began in 2008.

Investors had also slashed their positions in Europe late on Thursday after the European Central Bank (ECB) failed to buy Italian and Spanish bonds, which have reached budget-busting 6 percent yields, the highest level since the euro was introduced a decade ago.

EU Economic Affairs Commissioner Olli Rehn denied that Italy or Spain would require a bailout while at the same time calling for the "effective lending capacity" of the 440 billion euro ($622 billion) eurozone bailout fund, the European Financial Stability Facility (EFSF), to "be reinforced and its scope of activity widened."

Time for action

The 17 eurozone members held a crisis summit at the end of July in which a plan was adopted to grant Greece a second bailout while laying out a strategy to contain the debt crisis from spreading to countries like Italy and Spain. The plan, however, has not yet been executed.

"It is now essential to speed up the implementation and the approvals in the member states," Rehn said.

These measures, however, remain unpopular among France and Germany, which typically must give a political green light before Brussels can roll out pan-European crisis measures.

Greek Prime Minister George Papandreou said, however, that eurozone members have to take immediate action to bring confidence back to the markets and respond to the expanding debt crisis.

"Recent developments mainly reflect an increasing skepticism about the systemic capacity of the euro area to respond to the ongoing crisis," Papandreou wrote in a letter to Barroso.

Asia calls for cooperation

Meanwhile, Chinese Foreign Minister Yang Jiechi called on global policymakers to tackle the festering problems that ail the global economy.

"Europe's debt problems are still developing, and the US sovereign debt default risk is escalating," Yang said on Friday during his state visit to Poland, the current holder of the rotating EU presidency.

The US raised its $14.3 trillion debt ceiling on Tuesday after a bitter political fight that shook investor confidence in Washington's ability to meet its financial obligations.

Despite the perky jobs data, fears persist that the US could slide back into recession as its economy continues to falter.

"All countries must further increase communication and coordination, push ahead reforms in the global financial system, and improve governance of the global economy," Yang said.

Investors, meanwhile, are looking for new refuges to stash their wealth as gold prices rise and Switzerland and Japan intervene to prevent their safe-haven currencies from becoming too expensive.

Author: Spencer Kimball, Nicole Goebel (Reuters, dpa, AFP)

Editor: Sean Sinico