Many stock markets rose strongly on Thursday as a least temporary calm returned to markets a day after coordinated global interest rate cuts designed prevent a worldwide recession.
European shares were 2.3% higher in early trade and banking shares helped push Britain's FTSE 100 index 1.5% higher. Emerging market shares as measured by MSCI were up 2.6%, primarily reflecting gains in Asia.
Demand for government bonds, gold and low-yielding currencies, all recent beneficiaries of investors searching for relative safety, fell.
Thursday's relative calm followed an unprecedented display of international coordination on Wednesday when the US Federal Reserve and central banks from Europe, Canada and China executed emergency rate cuts in the face of amid plunging global equity markets and the worst financial crisis in 80 years.
However, confidence is draining and a climate of fear remains. The International Monetary Fund has confirmed the world economy is facing a major downturn. It may not be recession yet, but it is getting close, the IMF warns.
That sentiment was echoed by traders, including Rik Zwaneveld, from AFS Brokers in Amsterdam, who said the rate cuts were "a good step in the right direction to stop the bleeding, but this won't be enough."
After record losses in several nations on Wednesday trading was subdued in New Zealand, Japan, China, South Korea and Australia.
Japan's Nikkei share average finished 0.5% lower in a choppy session, down for a sixth straight day for its lowest close since June 2003. It suffered its biggest one-day drop in 21 years on Wednesday, shedding nearly 10% of its value.
The New Zealand market finished the day 0.13% down, while the Australian benchmark index was 1.53% lower. But Hong Kong's Hang Seng index rebounded 2.7% after three days of losses had taken it to the lowest close in two years.
Wall Street also closed 2% lower, although early indications from stocks index futures suggested there would be gains on Thursday.
Bank of Japan injects funds
The Bank of Japan became the latest central bank to inject funds into the money markets, releasing $US40 billion in an effort to keep credit flowing.
On Wednesday, the US Federal Reserve cut its federal funds target rate by half a percentage point to 1.5% and China, the European Central Bank and central banks in Britain, Canada, Sweden and Switzerland followed suit.
Earlier, Hong Kong slashed its main interest rate by a full percentage point to match a similar cut by Australia on Tuesday. New Zealand has not yet cut its benchmark interest rate.
US Treasury Secretary Henry Paulson warned some banks will still fail despite the $US700 billion government rescue package to shore up the financial system.
He called for the plan's swift implementation, but said the financial crisis would not end soon, warning it might be several weeks before the US Treasury begins buying up bad debt from banks.
Iceland seized control of a third large bank, and abandoned support for its withering currency. Prime Minister Geir Haarde said Iceland had not asked for help from the IMF , but said its assistance was "definitely an option".
Finance ministers and central bank chiefs from the Group of Seven - the United States, Japan, Britain, Canada, Italy, Germany and France - are to meet in Washington on Friday. The meeting will focus heavily on the effort to calm markets.
