Stock markets rally

Share traders are still facing great uncertainty

Share prices in the United States and Europe have posted large gains, reversing some of the huge losses suffered over the past two weeks.

Market close

Dow Jones: up 4.5% at 8,603.8

Nasdaq: up 5.4% at 1,499.4

Frankfurt: DAX up 6.6% at 4,038.7

London: FTSE up 2.5% at 4,544

Paris: CAC up 5.7% at 3,861.2

Analysts put the rises down to bargain hunting after last week's steep falls.

But the cautious mood remained as investors wait to see the exact form of US retaliation so the rises are unlikely to be sustained, they warned.

And the markets have a very long way to rise to make up for the heavy falls suffered since the 11 September attacks.

Strong Wall Street

On Wall Street, the Dow Jones Industrial Average and the Nasdaq closed higher after surging upwards at the start of trade and remaining in positive territory all day.

The broader Standard & Poor's 500 index also closed above the pyschologically important 1,000 level, at 1,003.4.

London, Paris and Frankfurt also made a good start to the week.

All three markets opened higher and got a boost in the afternoon from Wall Street's strong performance - as did key Latin American markets in Mexico, Argentina and Brazil.

Tokyo's stock market was closed because of a public holiday.

Elsewhere in Asia, most markets traded slightly down. Only Hong Kong rose after bargain hunters bought banking and telecoms stocks, pushing up the Hang Seng by 1.9%.

Last week's falls

The rises were the first respite for global stock markets which suffered heavy falls last week.

London's FTSE 100 leading UK share index fell about 7% last week, dropping to a four-and-a-half year low at one point on Friday.

In the US the Dow Jones industrial average lost 14.3%, its worst weekly performance since the Depression of the 1930s.

The Dow dropped 14.3% last week

Stockmarket indexes across Europe have lost on average of 20% since the 11 September attacks.

Analysts say immense volatility is a certainty until the outcome of the military build-up in Central Asia and the Middle East becomes apparent.

"It's going to be grim because nothing's happened and all we have to focus on is the bad news coming out from companies - and that's not going to get any better," Standard Life's head of European equities Stuart Fraser said.

Suffering sectors

The airline and insurance sectors have been worst affected, with oil price volatility also rattling energy companies.

However, stocks in major US and European airlines and planemakers Boeing and EADS rose on Monday.

The rises reflected relief that world governments had moved at the weekend to assist airlines to keep operating amid dwindling sales and insurance problems, analysts said.

Oil stocks also did well on both sides of the Atlantic, with rises in Exxon Mobile, Texaco, BP and Royal Dutch Shell.

However, rises were seen in all sectors.

"We've felt that market valuations have been pretty attractive for some time," said Ian Scott, European equities strategist at Lehman Brothers.

"We are at very cheap levels and expecting to see the market perform from here" he added.

Recession fears

Some fear the attacks have hastened a recession which was already looming for the UK.

The governor of the Bank of England, Sir Edward George, on Sunday said it was "too soon" to tell if a recession was coming.

He hinted there could be a further interest rate cut on 3 October to bolster the UK economy. This follows the surprise 0.25% cut days after the atrocities.

He said the attacks could not have come at a worse time for the global economy, which was believed to be on the verge of recovering from a slowdown.

But they should not cause "really serious decline" in the long term.

City watchdogs have now moved to prevent further volatility in the UK markets.

The Financial Services Authority (FSA) announced rule changes that will allow life insurance companies to hold on to their stocks even if share prices drop below prescribed levels.