Storm subsides on world markets

The question facing investors is how deep the sell-off will go

Global markets paused for breath on Wednesday after the recent global sell-off that has hit shares.

Wall Street ended its recent losing streak as investors put aside inflation fears and drove the Dow Jones higher.

The FTSE, which on Tuesday finished at its lowest level since December, suffered marginal losses after seesawing throughout the session.

Elsewhere, Germany's Dax index made small gains while France's Cac 40 closed just 2.5 points lower.

The main drag on the Paris market was aerospace company EADS, which sank more than 26% after announcing further delays in the delivery of Airbus A380 superjumbos.

In the US, investors shook off a report showing a rise in consumer price inflation, helped in part by rises in the technology sector after a number of broker upgrades.

The blue chip Dow Jones index closed 110.8 points ahead at 10,816.9.

In Asia, Tokyo's Nikkei 225 index closed 0.6% higher on Wednesday, clawing back some of the previous session's 4.1% fall.

A number of companies caught in Tuesday's sell-off rebounded as investors looked to snap up cut-price stocks, and the Nikkei closed up 90.96 points at 14,309.56.

Investor concerns

But the worry for investors is that any bounce in share prices may only be short-lived, amid concerns about faster inflation and higher interest rates.

Investors are concerned that central banks will over-tighten interest rates - slowing economic growth - in order to control accelerating inflation.

As a result, corporate earnings forecasts may be too high and require investors to re-evaluate their share price targets.

Many stock markets had been touching multi-year highs in the weeks before the sell-off, analysts pointed out.

"The decline in stocks is just part of an adjustment as a reaction to a too-recent rise in stock prices," said Yoku Ihara, an analyst at Retela Crea Securities.

Other analysts argued that the recent declines have made equities attractive once again.

"Japanese share prices have tumbled to a level at which it would be very reasonable to buy," said Hideyuki Suzuki, a strategist at SBI Securities.

Wider problem

The volatility in stocks has spread to other markets, with investors questioning the outlook for global economic growth.

Commodities have also fallen, with gold and copper leading the way, while crude oil has declined for three sessions in a row.

Copper, which dropped almost 2% in after-hours trading in London on Tuesday, recovered 1.5%.

Gold also climbed after it plunged 7% on Tuesday, its biggest one-day fall for 23 years.

New York light crude oil rose 30 cents to $68.86.

The US dollar dipped against the yen and euro, despite the expectation that US interest rates will rise.

Investors said they were worried that economic growth would stall, weakening the currency.

"It may take a while before the market can fully regain confidence," said Shuji Sugata of Mitsubishi Corporation Futures and Securities.