European stock markets closed sharply higher, with the FTSE in London up 3.5% to 6,064 points.
Banks led the comeback in the UK, with Northern Rock adding 51 to end at 690p per share and Standard Life closing up 20 to finish at 296p. In Frankfurt, the DAX closed up 1.49% at 7,378 points, while in Paris the CAC gained 1.9% to 5,364.
US stocks pared strong opening gains after the Federal Reserve slashed its discount rate, saying financial market turmoil could threaten the economy, as nervous investors turned cautious. The Dow Jones was up 1.16% to 12,995 points, while the Nasdaq added 1.4% at 2,481.
The surprise discount rate cut was the first time the US central bank has acted outside its regular rate-setting meetings since 2001.
Later, the Fed pumped $6 billion into the financial system, bringing the total to $94 billion injected since August 9.
In Dublin, the ISEQ closed up 49 points at 8,106, with banks recovering some of the heavy losses of recent weeks. AIB was up 65 to €18.65 and Anglo gained 35 to €13.80.
Earlier in Asia, share prices skidded lower as investors reacted to more bad news linked to the US housing sector. The Nikkei in Tokyo plunged by 5.4% - the biggest one-day drop since April 2000 - closing at 15,274. The Hang Seng in Hong Kong closed down 1.4% points at 20,387.
