US shares fall as Europe rebounds

Traders remain nervous about the markets

US stocks closed down on Tuesday after initially looking likely to follow the European trend and bounce back.

Having recorded its worst finish in six months on Monday, the Nasdaq lost another 0.62% on Tuesday and the Dow Jones dropped 0.24%.

European markets soared following the recent falls. The FTSE 100 added 2.6%, erasing Monday's falls, with German and French markets up more than 2.4%.

Earlier Asian shares slumped with the Nikkei index hitting a three-month low.

With continuing concern about interest rate rises in the US, analysts say all global markets remain nervous.

Stocks have also fallen on fears that markets had recently become overheated.

According to this view, the recent declines are simply market corrections, as shares fall to more realistic levels after hitting recent near-record highs.

All-time record

Analysts were divided upon whether Tuesday's rises in Europe marked the start of a wider recovery, or whether stocks could fall again.

Q&A: World market turmoil

"If these levels can hold, a rally may emerge as investor confidence recovers," said S&P Equity Research.

In contrast, one trader at a French bank said that despite the bounce backs, "the market outlook is still pretty uncertain".

In the US, analysts were cautious about the prospects for the commodity and equity markets.

"This is not the time to be backing up the truck and loading up with apparently cheap stocks," said DA Davidson strategist Fred Dickson.

US shares had rallied early in the day, helped by rebounding oil and gold prices.

But comments by US Energy Secretary Sam Bodman that soaring energy prices may hit economic growth fuelled inflation concerns leading to more sell-offs.

Tuesday's European rally followed huge falls late on Monday in Europe, as shares staged a last-minute slide which took the FTSE down 125 points or 2.5% to a five-month low.

Similarly in Asia, Australia's main S&P/ASX 200 index had fallen 70 points to close at 5,031 on Monday, while Japan's Nikkei fell even further - dropping 259 points to 15,599.20, its lowest close since 20 February.

With concern that the US Federal Reserve is to continue to raise interest rates to tackle inflation, market jitters are expected to remain.

Higher US interest rates put a brake on consumer spending and corporate investment, squeezing profits and jeopardising growth in the global economy.