The U.S. stock market fluctuated wildly today, rising and falling before the Dow Jones ended the day up 400 points, recovering much of the sharp losses it suffered on Monday.
The trading day was affected by an announcement by the Federal Reserve that it will take no new measures to stimulate the economy but will keep short term interest rates near zero through mid-2013.
The rate currently stands at zero-to-0.25 percent, and dates back to the global financial crisis of December 2008, when the U.S. was in a steep recession.
The decision was widely expected but U.S. stocks rose on the news, continuing their recovery from Monday's biggest one-day point drop since 2008.
That plunge came on the first day of trading following the August 5 downgrade of the U.S. government credit rating by Standard & Poor's, which said it acted out of uncertainty that Congress could agree on a long term solution to the nation's rising debt.
At the close of trading, the Dow Jones industrial average was up 429.62 points, or nearly 4 percent, to close at 11,239.47.
European shares also ended broadly higher, halting a 20 percent dive over the past two weeks as traders began bargain hunting.
In Asia, though, the markets weren't as resilient: Tokyo closed down 1.68 per cent, the Shanghai composite index ended the trading day off slightly, Hong Kong dropped 5.7 per cent, and South Korea was down 3.6 per cent after recovering from a 9 percent drop earlier in the day.
The U.S. credit rating downgrade has come amid concerns that the eurozone debt crisis could spread to Italy and Spain, and has sparked fears of a new global recession.
European Central Bank President Jean-Claude Trichet summed up the grim
mood today in Frankfurt. "There are a lot of factors playing a role, including the successive responses to the very serious crisis which we have had since August 2007. In total, and especially since Lehmann Brothers, it is the worst crisis since World War II."
A key factor in the market chaos has been a crisis of confidence among investors about whether the political establishment in both Europe and the United States can find a way out of their mounting debt problems amid slowing global growth.
The ripple effects of Monday's market plunges were also felt today in Russia, where the ruble fell to a six month low, losing more than 3 percent of its value against the dollar.
Russian markets fell into a frantic sell-off, triggered by the sharp drop in oil prices caused by the U.S. debt downgrade.
With gloomy forecasts about future economic growth, oil prices today dropped 2.5 percent, to below $80 a barrel. .
High oil prices through most of the year have helped Moscow post an unexpected budget surplus of 2.7 percent for the first half of this year.
Analysts say that could help Russia weather global economic turmoil as long as it is brief. They say trouble will come if oil prices remain low, making it difficult for Moscow to meet its social spending obligations ahead of parliamentary and presidential elections.
Prime Minister Vladimir Putin said the government and central bank were monitoring the situation and would take action if necessary.
Shares in other emerging European markets were equally panicky.
The European Central Bank's Trichet said today the bank would continue buying government bonds from troubled economies like Spain and Italy. On Monday it bought billions of euros worth of Italian and Spanish bonds, which helped ease borrowing costs for Rome and Madrid.
Trichet today also called on eurozone governments -- notably Spain and Italy -- to "do their duty" to reduce deficits and stabilize their own finances.
Analysts say soaring inflation in China, the largest holder of U.S. debt, has also fanned fears of a new sharp economic slowdown. Those concerns rose after Beijing today said its politically sensitive inflation rate had risen in July to its highest level in more than three years -- mostly due to soaring food costs.
Chinese Premier Wen Jiabao today called on "relevant nations" to take "concrete and responsible fiscal and monetary policies" to restore the confidence of global investors.