Global stock market volatility will continue for some time, analysts have said, and may force the Federal Reserve to cut US interest rates imminently.
The Federal Reserve may be under pressure to take more action
US and European markets stabilised on Friday after the Fed cut the rate at which it lends to banks in an effort to stem the heavy losses of recent days.
But analysts say this may not be enough to end the volatility caused by banks' exposure to the weak US housing market.
Many expect US rates to be cut from 5.25% to prevent wider economic damage.
US policymakers are not officially due to hold their next interest rate meeting until 18 September.
But many experts feel they will come under pressure to cut the federal funds rate - the rate at which banks lend to each other and which is used to determine consumer borrowing rates - within days if the turbulence continues.
"A rate cut would send the signal that the Fed is now fully committed to restoring the order," said Stephen Gallagher, an equity analyst at Societe Generale.
The leading US Dow share index rebounded to close up 1.8% on Friday following the Fed's move to cut the primary discount rate for banks to 5.75%.
But the index has still lost 6% of its value in the past month.
The recent market turmoil has been triggered by a wave of mortgage defaults in the US as the housing market slowed dramatically.
Markets across Europe and Asia have been similarly buffeted on fears of a wider crisis in the financial system due to the huge liabilities of banks and other financial companies linked to the unstable sub-prime mortgage sector.
The FTSE 100 in London fell more than 4% on Thursday - its single largest daily fall in more than four years - before bouncing back slightly on Friday.
Asian markets will provide the first test of confidence on Monday
Japan's leading share index fell more than 8% last week.
These dramatic falls were caused by uncertainty about the level of exposure of hedge funds and other financial institutions to the US sub-prime mortgage sector, prompting investors worried about future losses to sell shares.
Thousands of sub-prime borrowers - higher-risk customers due to their poorer credit histories - have defaulted on payments as US interest rates rose, forcing lenders out of business.
This, in turn, has led to fears of a global credit squeeze as banks - nervous about the financial implications of the housing crisis - stiffen lending terms.
Some commentators fear a sustained credit squeeze could choke consumer spending and business investment, even tipping the US into a recession.
All eyes on Asia
The Fed and the European Central Bank have pumped billions into the banking sector in recent days to try and restore confidence but analysts expect further volatility.
"It will take time for markets to assess the extent of the losses due to the decline in sub-prime markets," said Henk Potts, from Barclays Capital.
"Until analysts have a much better understanding of the losses and their potential impact, volatility is set to continue."
All eyes will be on markets across Asia when they open on Monday to see if the Fed's action proves sufficient to quell fears.
"The market's fall has been too steep so I expect to see a rebound," Yosuke Shimizu, head of investment at Monex, said of Monday's prospects.