French President Nicolas Sarkozy has ordered his finance and budget ministers to come up with additional measures to reduce the public deficit amid concerns France could be next to lose its top AAA credit rating.
Standard and Poor's ratings agency last week downgraded the U.S. rating from AAA to AA+.
The downgrade, along with worries over the debt problems afflicting a number of European countries, has sparked fears of a new recession and caused markets to plunge in recent days.
Sarkozy interrupted his vacation to hold an emergency meeting on the global financial turmoil and France's own strained finances.
France is the most indebted of the eurozone's six AAA-rated states.
U.S. markets opened down on August 10, with the Dow Jones industrial index losing some 4 percent in morning trading, as European stock markets continued their fall.
Stock markets plunged in Italy, France, Germany, Spain, and other European cities as world markets continued to reel. Italian stocks crashed by more than 6 percent, the Frankfurt DAX lost more than 5 percent, Spanish share prices dropped by 4.7 percent in afternoon trading, and London stocks by 3 percent.
Rumors of a rating agency downgrade of France and the steepest fall of French bank Societe General's shares in 23 years contributed to the CAC 40 falling by some 3.8 percent.
The Fitch rating agency later confirmed France's top AAA rating.
But Fitch said eurozone member Cyprus would probably be unable to meet its financing requirements during the rest of this year and early 2012 and will likely need an EU bailout.
However, Asian stocks gained on August 10, clawing back some lost ground after the rebound in U.S. share prices on August 9.
At the same time, sentiment was also positive in Sydney, where Australian shares staged a stunning turnaround to fully recover from a slump of more than 5.5 percent.
Gains Could Be Short-Lived
Stock markets in the Middle East and in Europe -- including Russia -- also reacted positively in early trading on August 9 to the news that the U.S. Federal Reserve is attempting to shore up investor confidence amid a eurozone debt crisis and in the wake of a U.S. credit-rating downgrade by Standard & Poor's on August 5.
But some analysts are cautioning that the gains made could be temporary.
"I think yesterday's [August 9] market reaction is very temporary because the market sees the downside risk of the global economic recession," said Junko Nishioka, chief economist for the Royal Bank of Scotland. "The economy has been increasingly supported by the accommodative monetary policies of the advanced economies, but the reality is that the economy has already headed into...recession on [a] global basis."
Dollar 'Likely To Decline Further'
Nishioka warned that the decision by the U.S. Federal Reserve to keep its key interest rate near zero could fuel the appreciation of other currencies against the dollar and have an adverse effect on the competitiveness of exports in those countries.
"I do believe that the Fed's decision yesterday has an impact on the dollar-yen," he said. "The dollar is likely to decline further, [which] means that the Japanese economy is going to face a very serious condition and face the further appreciation of Japanese yen."
Stock markets had fallen since the beginning of the month because of concerns that the U.S. economy might be headed for another recession and worries over a spreading debt crisis in the countries that use Europe's single currency, the euro.
Ben Potter, a Sydney-based analyst for IG Markets, said it was "very positive" to see the gains that occurred on August 10.
But Potter said the big question was going to be how long the rally lasts before traders are faced with the question of whether it is nothing more durable than a temporary bounce for volatile markets.
compiled from agency reports