When trading started, share prices appeared set to continue their rise, but soon prices crumbled as investors tried to cash in on the extraordinary gains of the past days.

London's benchmark index, the FTSE 100, was down 61 points at 5,787 just after 1046 GMT.

The bears are always waiting in the background

"The market's had such a strong run, we may in for a more reflective period," said Bob Semple, equity strategist at BT Alex Brown.

In Germany the Dax dropped below 5,000 points again, down 24 at 4,994. Among the major stock markets only Paris was still in positive territory, but there prices were crumbling as well.

Market watchers now expect Wall Street shares to fall as well. They call the sharp gains on Asia's stock markets a "knee-jerk reaction" to the surge in New York.

Some even predict a return of a bear market, where share prices are falling massively.

Asian rally

In Tokyo the Nikkei index jumped 2.6% - clearing the 15,000 points hurdle for the first time in three months. The Japanese stock market ended Tuesday's trading session up 384 at 15,164.64 points.

Hong Kong's investors were in buoyant mood too. The Hang Seng - key index for the territory's stock market - was up more than 337 points or 3%, soaring above the 10,800 points level. This follows Monday's gain of 2.7%.

Wall Street's record Monday

Main reason for Monday's strong gains was the renewed onset of merger mania, which set stock markets around the world alight.

Shares have charged ahead, but is it a new bull run?

US stocks got off to a storming start and closed at an unprecedented 9,374.87 points, up 2.29% - it's highest level ever.

A flurry of merger activity also sent European stocks soaring.

A clutch of major companies announced they had either finalised takeover plans or were holding discussions about joining forces.

Deutsche Bank of Germany has indicated it is in advanced talks to buy Bankers Trust, the eighth largest US bank, for $10bn in a deal which would create one of the largest financial groups in the world.

Leading Internet group America Online could also be about to pounce on Netscape, which provides access to the worldwide computer network, in a $4bn deal.

AOL shares soared on the news and closed up 89.5 points while Netscape rose 41 points.

Sun Microsystems rose up 71 points, and even Microsoft was up 119 points.

Sustained recovery?

Wall Street traders seem optimistic that the Federal Reserve bank has moved quickly enough to cushion the American economy from the effects of economic turmoil around the world.

They now forecast that the expected slowdown next year will have a soft landing.

Moreover, the financial performance of American companies in the third quarter was generally better than expected.

Nonetheless, many dealers are sceptical about the market's ability to sustain the rise, and believe that we could still be in a bearish market, with shares suffering long term falls.

"Investors are running out of new stories to justify the stock market's high levels," said John Geraghty of North American Equity Services, a consulting firm.