In Europe, most markets dropped by more than 1% in early trading on Monday after Wall Street's near-record dive on Friday.

But renewed bargain-hunting in New York saw early European losses stemmed as the FTSE index of leading London shares finished 38.1 points lower at 5,869.2, having slipped as low as 5,798.3 early on.

Shares in Frankfurt, Paris and other European exchanges also recovered from the day's lows.

On Wall Street, the Dow Jones Industrial Average ended up closing sharply higher - boosted by late session buying.

The Dow closed up 96.57 at 10,116.28 after having traded as low as 9976.02 and as high as 10,116.23.

The S&P 500 was up 6.75 at 1,254.15. The Nasdaq composite closed down 42.68, or 1.56%, at 2,689.15 - but was well above its session low of 2,632.01.

Far-Eastern blues

The improvement in sentiment came too late for Japanese investors. In Tokyo, the Nikkei index of leading shares fell by a further 2% on Monday, following a smaller drop on Friday, despite intervention by the government pension fund.

The index closed down 326 points at 17,275.

The BBC's Patrick O'Connell: "A nervous market after a torrid Friday"

Shares in Singapore, Thailand and South Korea also plunged sharply. Hong Kong was perhaps fortunate in being closed for a holiday.

The falls were driven by worries that interest rates might soon rise in the United States following a sharp rise in producer price inflation.

Analysts said that despite the upturn, investors were still jittery and would be closely watching the figures for US consumer prices, published on Tuesday, and US trade figures, released on Wednesday, for signs of any further inflationary pressures.

Dow Jones at six-month low

The Dow had finished down 267 points on Friday at 10,019. That ended a bad week for the index, which lost more than 5.9% of its value in five days.

Investors are worried that higher interest rates are coming

There is much nervousness about Tuesday, which marks the 12th anniversary of the 1987 crash. Markets lost up to a quarter of their value on the infamous Black Monday, and crashes seem to happen more often in October than any other month.

The trigger for Friday's fall was a warning by US central bank head Alan Greenspan that stocks were over-valued, and a set of economic figures which suggested that inflation was threatening to take a grip again.

One portfolio manager said he believed Greenspan had been trying to put a dampener on the stock market so it would not be so strong going into the Christmas shopping season.

A strong market, combined with rising consumer sales, could point to another interest rate rise.