And bonds - usually the bell-weather of the flight to quality - became the latest victim of the financial turmoil, as bond prices fell sharply in rock solid US and German government securities.

Bond traders used the word "bloodbath" to describe the state of the market.

The need for cash by hedge funds in trouble was blamed for the fall.

Furthermore, the collapse in the value of the US dollar continues to add to the turbulence in the markets, despite the fact that trading so far has proved to be somewhat quieter.

Wall Street falls back

In nervous trading, stocks in New York opened higher, with the key Dow Jones index gaining more than 68 points. However, the rally could not be sustained, soon the losses were piling up and Wall Street's main index was soon swinging in and out of the red again, at one point hitting a low of 7,666.

Then yet another rally got under way, pushing the Dow to 7,852 - up 120 points at 1835 GMT.

Tech stocks managed a strong bounce back from their big losses this week, with the Nasdaq index up more than 53 points. Shares in companies like Dell Computers, Intel, and Microsoft traded higher.

Modest recovery in Europe

The greenback even managed to recuperate a little bit, and this helped the shares of Europe's export-oriented manufacturers.

News of larger-than-expected interest rate cuts by the central banks of Ireland and Portugal triggered late rallies on several European markets.

In London, Europe's largest stock market, the FTSE 100 index of leading shares closed at 4,823 - up a healthy 124.5 points, but not enough to reverse all of its 130 point loss on Thursday.

However, on the week the Footsie ended up 1.5%.

In Frankfurt, the DAX index ended the day up 87 points at 3,983, while in Paris the Cac 40 was more buoyant, gaining 132 to close at 3,092 points.

Zurich managed a rise of 125 points to 5,419.

One market bucking the trend was Italy.

Share prices tumbled after Italian Prime Minister Romano Prodi lost a confidence vote in his government by just one vote.

The political uncertainty caused the market to fall by almost 2%, reversing strong early gains, but it recovered later.

Asian markets unsettled

Japanese shares slipped back despite the fact that the government is finally showing signs of tackling the country's troubled banking system, which has brought the world's second largest economy to its knees.

The surge in the value of the yen against the dollar has created concerns that exporters' profits will be hit.

Japanese officials also warned that poor company profits threaten to deepen the economic crisis that has beset the country.

The Nikkei index of leading shares closed down more than 1% or 146 points, at 12879.

On Thursday the Nikkei index of leading Japanese companies ended down 800 points, or 5.8% at 13,026, one of its biggest daily falls on record.

However there was better news in Hong Kong.

The Hang Seng index had jumped by 7%, or 567 points to 8,506 by the end of trading.

Dealers were encouraged by the prospect of lower interest rates around the world.

The rise in the yen has taken pressure off the Hong Kong dollar which has a fixed peg to the US dollar.