US stocks made a big comeback in the final hour of trading on Tuesday, the S&P surging 4.1 percent in the final 50 minutes to end the session up 2.3 percent for the day. The rebound came in the wake of a report that European Union officials are examining how to recapitalize the region’s banks.
Earlier, the STOXX Europe 600 Index had fallen 2.8 percent after European governments hinted that bondholders may be saddled with bigger losses on Greek debt and Franco-Belgian lender Dexia raised concerns that it will need a second bailout.
To add to concerns for Europe, Moody's cut Italy's credit rating to A2 from Aa2 on Tuesday.
Among economic data out on Tuesday, US factory orders fell 0.2 percent in August but orders for capital equipment excluding aircraft and defense goods rose 0.9 percent.
In his testimony to Congress, Fed chairman Ben Bernanke said that the US economy is "close to faltering".
In the euro area, a faltering economy may be helping to relieve inflationary pressure. Producer price inflation slowed in August, with prices rising 5.9 percent from a year earlier compared to a 6.1 percent increase in July.
Under the circumstances, even the Reserve Bank of Australia, one of the most hawkish central banks coming out of the last global recession, may now be willing to cut interest rates. It left interest rates unchanged at 4.75 percent on Tuesday.
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