London - World stock markets staged a turn around on Friday, with Tokyo closing up nearly 3% and European indices back in the black despite a steady flow of dismal economic news.
Dealers said stocks appeared to have been oversold during several days of heavy falls, creating room for a rebound ahead of the weekend as investors went bargain hunting.
In late morning European trade, London was up 1.53%, Frankfurt gained 1.50% and Paris climbed 1.71%.
Earlier Friday, Tokyo closed up 2.7%, Hong Kong rallied 2.9%, Seoul surged 5.8% and Hong Kong Sydney gained 1.9%.
"Investors are bypassing fundamentals and trading on their emotions at the moment, which accounts for the dramatic falls we have seen in the last few days," City Index Market Strategist Joshua Raymond said Friday in London.
"However, we are also seeing opportunistic buying, which accounts for the small rally today and the expected strong opening of the US markets this afternoon." Wall Street was to reopen at 143:0 GMT after plunging overnight.
Investors on Friday took heart from a report in the Wall Street Journal that Citigroup executives are considering selling all or parts of the US banking giant in a massive restructuring effort, dealers said.
The rebound came despite an unrelenting torrent of grim news on the economy, which one analyst described as "one car crash after another" for markets.
Investors scared off
"Whether through panic, speculation, fear or the forced unwinding of positions, we are witnessing mass selling on every level," said GFT derivatives head Martin Slaney.
"The risk of global economic recession is deepening by the day. The prospect of The Great Depression Two is a genuine one and is plain scaring investors."
Business activity in the 15 nations sharing the euro slumped in November at the fastest pace on record as a severe downturn deepened, according to a widely watched survey on Friday.
Investors were also unnerved by news on Thursday that Democrats in Congress had put off a vote on a bailout for crisis-hit US automakers until at least December, and ordered industry chiefs to come up with a new restructuring plan.
"The delayed action on a US bailout deal for the Big Three automakers is significant for markets," said Seiichi Suzuki, a strategist at Tokai Tokyo Securities.
"A bailout deal for the auto industry may help it to survive a bit longer but it would not be a cure-all remedy."
Democrats said the chief executives of the Big Three, criticised for flying to Washington on luxury corporate jets to plead for financial rescue, had not convinced them they could restructure their reeling companies.
"Until they show the plan, we cannot show them the money," House speaker Nancy Pelosi told reporters.
The decision to delay a possible multi-billion dollar rescue for the crippled industry rattled Wall Street, where the Dow Jones Industrial Average plunged 5.56% overnight. Weekly US jobless claims shot up to a 16-year high, raising fears of a deep recession.
Investors are worried about the hazy outlook for further steps to tackle the worst financial crisis in decades because president-elect Barack Obama will not take office until late January.
"We are at a very difficult time for markets when the US administration is shifting," said Shinichi Ichikawa, chief equity strategist in Tokyo for Credit Suisse.
"We cannot expect at this time that either the outgoing president or the president-elect will come up with a policy that shows his strong intention to improve the economy fundamentally."
- AFP