Global recession fears returned to centre stage on Wednesday after trillions of dollars pledged by governments around the world for bank bailouts eased the threat of imminent financial meltdown.
A senior US Federal Reserve official said the world's biggest economy already appeared to be in recession, while Bank of Japan Governor Masaki Shirakawa said global financial markets remained very strained.
European leaders will press on Wednesday for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks.
EU leaders meet in Brussels just days after stumping up 2.2 trillion euros to rescue European banks and jolt frozen money markets into life.
Southeast Asian nations backed by Japan, South Korea, China and the World Bank, were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to buy bad debt and help banks.
The Southeast Asian fund, to be set up with $US10 billion World Bank backing, will buy up toxic debts and support banks in the region hit by the financial crisis, Philippines President Gloria Macapagal Arroyo said.
Leaders including French President Nicolas Sarkozy and Britain's Gordon Brown say the global turmoil shows the world's post-Second World War financial architecture is no longer adequate.
The United States put its shoulder to the wheel on Tuesday by offering to take $US250 billion worth of stakes in nine top banks - an astonishing move in the home of free market capitalism.
Treasury Secretary Henry Paulson said government part-ownership of banks was "objectionable" but vital to prevent a worsening of the crisis, which began with a US housing market collapse and now threatens economies worldwide.
Markets were mixed on Wednesday, on concerns the rescue would come at a huge economic cost and do little to repair the damage already done by a 14-month credit crunch.
European shares slipped in early trade, with the FTSEurofirst 300 index down 1.4%. It rose by a record 10% on Monday.
Japanese share prices closed up 1.06% after spending most of the session in negative territory. On Tuesday, the Nikkei rose 14.2%, its largest single-day gain ever.
In Australia, the benchmark index was almost 1% down, while New Zealand NZX 50 had fallen 1.5% by the close of trade. Hong Kong shares slid 5%.
Governments pledge trillions
Governments have pledged about $US3.2 trillion in a variety of schemes that guarantee bank deposits, bank-to-bank lending, and the purchase of new securities to shore up bank capital.
That money is on top of huge open-ended central bank commitments to inject temporary funds to get lending moving again in the face of the gravest financial crisis since the Great Depression in the 1930s.
The nagging uncertainty over how much damage the repackaged toxic US debt linked to American low-quality mortgages has inflicted on corporate and bank balance sheets has made banks increasingly reluctant to lend.
The crisis reached new proportions in September when the failure of Wall Street stalwart Lehman Brothers and US government bailouts of mortgage giants Fannie Mae and Freddie Mac and insurance firm AIG, raised the spectre of an all-out financial sector meltdown.
A flurry of initiatives, including last week's unprecedented round of coordinated interest rate cuts, has calmed fears of a global bank sector collapse and put funds back into money markets, the lifeblood of the financial system.
But the actions are not expected to kick-start the economy any time soon.
Only a handful of smaller countries, including New Zealand, Ireland and Singapore have so far confirmed they are in a recession, but Japan and Germany, the world's second- and third-biggest economies, have said they were on the brink of a downturn.
For months, market hopes have been pinned on new economic powerhouses such as China and India, but even they are feeling the strain from the global turbulence.