United States stocks fell on Friday after weak housing and consumer confidence reports added to growing worries about a widening slowdown.
Oil prices have risen on expectations that the Organisation of Petroleum Exporting Countries (OPEC) is to cut supplies, resulting in a rise in European stocks as oil drove energy shares.
Trading was volatile on Wall Street and other financial markets as a wave of forced selling pushed security prices wildly up and down in what has become a daily occurrence.
The Dow capped its best weekly gain in five years and the broader S&P 500 had its best week since February, after a disastrous three weeks that had knocked US stocks deeply into bear territory.
US stocks had risen solidly earlier on reassuring results by technology leaders Google and IBM, as well as bargain-hunting.
But a growing fear of recession loomed over investors on reports that showed US consumer sentiment suffered its steepest monthly drop on record in October and housing construction fell to a 17-year low last month.
Wall Street turned lower in late trade after a roller-coaster session. Analysts said options expirations could have increased stock market volatility on Friday.
The Dow Jones industrial average closed down 127.04 points, or 1.41%, at 8,852.22.
The Standard & Poor's 500 Index slipped 5.88 points, or 0.62%, at 940.55. The Nasdaq Composite Index shed 6.42 points, or 0.37%, at 1,711.29.
Europe shares rise with oil prices
Oil jumped 2.9%, spurred by a broader rise across many financial markets and expectations that OPEC could cut output at an emergency meeting next week.
US crude settled up $US2 to $US71.85 a barrel, while London Brent crude gained $US1.76 to settle at $US69.60 a barrel.
The rise in oil prices pushed energy shares in Europe sharply higher, driving up markets across the continent.
In Europe shares gained 4.2%, ending a volatile week on a strong note, thanks to energy stocks that tracked a recovery in crude, while drugmakers rose ahead of key company reports next week.
The pan-European FTSEurofirst 300 finished the week 6.3%higher.
The FTSEurofirst 300 index of top European shares closed up 4.2% at 894.77 points. The index has lost 39.9% this year on recession worries and the effects of banking failures.
"This is the most volatile week we've seen," said Thierry Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole intelligent thing is to remain on the sidelines and not make any huge bets."
Gold's status as a hedge against inflation was also weakened as investors worried that a recession could not be avoided amid a deepening financial crisis.
Gold bullion fetched $US785.80 an ounce at 1823 GMT, down 2.3% from Thursday's close of $US804.50.
NZ and other Asia Pacific shares rise
Shares in Asia and the Pacific rose on Friday after encouraging earnings signals from technology firms such as IBM and a slowly improving tone in battered short-term money markets helped ease concerns about a global recession.
Asian stocks posted their first weekly gain in seven, with advances in the last trading day underpinned by a rally on Wall Street on Thursday that sent the Dow Jones industrial average up more than 4%.
Japan's Nikkei index closed 2.7% higher on Friday, clawing back some of the previous day's heavy losses. Singapore stocks rose 0.5%, while Shanghai's main index advanced 1%.
In New Zealand, the benchmark index was almost 1.6% higher.
But other indexes in the region fell. Stocks in South Korea and Taiwan dropped more than 2% each. Australian stocks lost 1%, India's benchmark index slipped 0.5%, while Hong Kong shares closed 4.4% down.