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

London's benchmark index, the FTSE 100, finished 50 points lower at 5,798.

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 60 at 4,958. Among the major stock markets only Paris remained in positive territory for most of the day, but even there prices crumbled after Wall Street opened lower.

The Paris Cac 40 index closed down 6 points at 3,839.

Wall Street's opening fall came as no surprise to market watchers.

By close the Dow Jones had slipped 73 points to 9,301. Traders said the sharp gains on Asia's stock markets had been a "knee-jerk reaction" to the surge in New York on Monday.

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 was up more than 337 points or 3%, soaring above the 10,800 points level after a gain of 2.7% on Monday.

Wall Street record

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

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

In New York, the Dow Jones 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 indicated it was 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.