European, Asian markets rise after Wall Street's stunning comeback a day earlier

LONDON — European markets surged Thursday as a stunning comeback on Wall Street a day earlier heartened investors worried about the U.S. economic outlook.

Markets in Britain, Germany, and France followed most Asian markets higher Thursday, helping erase losses from their steep slide earlier this week that was driven by fears of a recession in the U.S., a vital export market.

The U.K.'s FTSE 100 index rose 4.3 percent to 5,841.0, while Germany's DAX index climbed 5.4 percent to 6,785.2. France's CAC-40 index was 4.5 percent higher at 4,845.0, as traders were unfazed by news of massive fraud at Societe General, the country's second-largest bank.

British banks and insurance firms surged on Thursday morning to drive the best one-day performance since Aug. 17 last year behind gains from U.S. financial companies and hopes that U.K. regulators will step in to rescue bond insurers.

In Germany, markets were buoyed by a closely watched report on the business sentiment in the country, Europe's biggest economy, which rose slightly in January, beating expectations and suggesting the fallout over the U.S. subprime crisis in Europe might be less severe than thought.

The turnaround in European markets was based on reports that New York insurance regulators have met with about a dozen banks Wednesday to discuss ways to shore up bond insurers MBIA Inc. and Ambac Financial Group Inc., said Keith Bowman at Hargreaves Lansdown Stockbrokers in London.

"The health of those insurers has been major factor hanging over markets in the past few days with fears that they may be the next domino to fall in the fallout of the sub-prime crisis," Bowman said.

Wall Street appeared headed to a modestly higher open Thursday. The Dow Jones industrial average futures rose 28 to 12,300 ahead of the market opening and the Standard & Poor's 500 index futures rose 3.50 to 1,345.50.

Markets in Japan, South Korea, Australia, Singapore and the Phillippines rose for a second day. But trading was volatile in Hong Kong and the Hang Seng index finished down 2.3 percent.

India's Sensex fell 2.2 percent after rising at the opening. China's Shanghai Composite Index gained just 0.3 percent, while Japan's Nikkei 225 index rose 2 percent to 13,092.78.

"Markets will remain very volatile" in the near-term, said Song Seng Wun, chief executive of CIMB-GK Research Pte. Ltd. in Singapore. "We are in a situation where we still really don't know if the U.S. is going to pull us down or not."

It has been a tumultous week for global markets, plagued by worries about a slowdown in the U.S. economy, which has been hurt by a housing slump and credit crisis.

Asian markets plunged sharply Monday and Tuesday, then rebounded Wednesday after the U.S. Federal Reserve cut a key interest rate by a unprecedented three-quarters percentage point in an attempt to support the American economy.

Worries about fallout from the U.S. mortgage market woes were reawakened in Hong Kong on news that Societe Generale said it will write down an additional 2.05 billion euros ($2.99 billion) in assets related to sub-prime exposure and fraud related to a rogue trader will result in a 4.9 billion euros ($7.14 billion) loss.

"This is putting salt on the wounds, as this signals how bad credit conditions are," said Castor Pang, a strategist at Sun Hung Kai & Co. in Hong Kong.

The territory's Hang Seng index had soared 10.7 percent Wednesday after sliding 13.7 percent the previous two days.

Still, many Asian investors were encouraged by the remarkable comeback on Wall Street on Wednesday, when the Dow Jones industrial average sank as much as 323 points before bouncing back to rise 298.98 points, or 2.5 percent, to 12,270.17.

The 631.86 point turnaround in the Dow was the largest for a single day in more than five years — and reflects the intense volatility that has gripped global markets amid investor uncertainty.

Some traders are betting that the Fed will cut its fed funds rate another 50 basis points when it meets next Tuesday and Wednesday. Rate cuts are designed to stimulate borrowing and, in turn, business activity and the overall economy.

Still, some analysts warned that the United States faces serious problems that interest rate cuts alone can't fix, and many economists still predict a U.S. slowdown that could drag on global growth.

"At this juncture, we are still taking our cues from Wall Street in the financial sector," said Song of CIMB-GK. "If the U.S. financial sector crisis were to expand to the real economy ... then that crisis of confidence will translate to slower real economic activity in Asia as well."

— — —

AP writer Carl Freire in Tokyo contributed to this report.