Positive signs

European stock markets continued to shed points Tuesday after early minor gains had prematurely signalled that the seven-day market rout might have finally eased.

An hour after trading floors opened, Europe's major markets seemed to have stabilized; however, the powerhouse economies of Germany, France and Britain all gave up their early leads to fall back into the red.

Frankfurt's DAX slumped 2.35 percent, London's FTSE 100 shed 3.52 percent and the Paris CAC 40 lost 2.44 percent. Debt-laden Italy and Spain also saw early gains wiped from their markets, with losses of 1.18 percent and 1.36 percent, respectfully.

Financial spread-betters had expected the value of German, British and French stocks to all drop by as much as 5 percent Tuesday. Monday saw similar early rises before an afternoon slump that saw most European markets close at a loss.

The current market unpredictability has been stoked by panic over a downgrade last week of the United States' credit rating by agency Standard and Poor's.

Asian markets also continued their slump in Tuesday trading, with investors losing confidence that the US and Europe could solve the sovereign debt crisis. Many fear a lack of successful action would plunge the world economy into another recession following on from the global financial crisis.

"The current situation could be seen as a fast, complete and unexpected loss of confidence that has been building up over the past few weeks," French bank BNP Paribas said in a note published as Asian stock markets swooned, losing between 2 and 7 percent.

US defiant

World markets had taken a tumble Monday in the wake of last week's historic downgrade of the US credit rating from AAA to AA+, as Washington struggled to reassure the world it would be able to cut its budget deficit and reduce its debt.

Following a tumultuous day for world markets, US President Barack Obama expressed his confidence that the US would weather the blow.

"Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a AAA country," Obama said in a live television statement.

Wall Street finished Monday more than 6 percent down. The Dow Jones was down 5.55 percent, the Nasdaq fell by 6.9 percent and the S&P 500 Index dropped by just under 6.7 percent.

Europe takes a beating

In Europe stocks plunged to a two-year low Monday after markets enjoyed brief gains in early morning trading. Frankfurt closed down by more than 5 percent, Paris was down by 4.7 percent and London dropped by nearly 3.4 percent.

Madrid sank 2.44 percent and Milan dropped 2.43 percent, reversing gains made after the European Central Bank (ECB) announced it would invest in Spanish and Italian bonds earlier in the day. This brings down the bonds' rate of return, which had shot up last week.

In a statement, the ECB said it welcomed announcements that both countries, now the focus of speculation about a possible default, were committed to speeding up budget cuts.

There were sharp losses as the markets in Asia and Australia opened on Tuesday, with investors reacting to the previous day's losses.

As of Monday, some $3.8 trillion ($5.4 trillion) has been wiped off world stock markets and political leaders are now trying to reassure investors that Western governments have the will and ability to tackle their growing debt burdens.

Author: Richard Connor, Darren Mara (Reuters, AFP, dpa)
Editor: Nancy Isenson