United States shares recovered Wednesday almost all of Tuesday's heavy falls with the Dow Jones index gaining 1.9% as investors looked to pick up bargains. Increased hopes that the Federal Reserve could cut interest rates following a letter from Chairman Ben Bernanke buoyed investors
European shares also ended higher after a day of mixed trading. The UK's FTSE 100 closed 0.5% ahead at 6,132.2 while Germany's Dax was 0.1% up after trailing for most of the day. Meanwhile, France's Cac-40 index gained 0.84%. Earlier on Wednesday, Japan's main Nikkei index closed down 275 points, or 1.7%, at 16,013. The Dow Jones ended up 247.4 points at 13,289.3 on Wednesday, having closed 280 points, or 2.1% down, on Tuesday. Meanwhile the Nasdaq added 2.5% to 2,563.16 and the S&P 500, 2.19%. In Latinamerica Brazil's Bovespa climbed 2.11%; Argentina's Merval, 3%, Chile's IPSA, 1.55% and Mexico's stock exchange followed with 1.31%. Analysts said that investors hoped the volatility on global markets would be eased if, as many expect, the US Federal Reserve cuts interest rates next month. Following on its liquidity policy the Fed pumped 5.2 billion US dollars into the system. Tuesday's fall came after another warning about the impact of the problems in global credit markets - centered on the crisis in the US sub-prime mortgage sector - from investment bank Merrill Lynch. The bank downgraded its opinion of stocks in three firms exposed to the sub-prime sector - Bear Stearns, Lehman Brothers and Citigroup. Sub-prime default levels have risen to record highs in the US over the past year in the face of higher mortgage rates. This has raised fears that this could hamper credit availability in the broader market, not just in America, but around the world. On Wednesday, Australian-run investment fund, the Basis Yield Alpha Fund, became the latest victim of the housing slump. It filed for bankruptcy protection in the US after suffering heavy losses as a result of defaulted payments.