In trading Tuesday, European stock markets continue to react nervously to U.S. recession fears.

Having shed 5.5 percentage points on Monday and taking its cue from Asia, the London stock market dropped 3 percent at the start of trading, but most of that loss was recovered on rumors among traders of concerted rate cuts both here and in the United States in the near future.

The story is the same in Paris and Frankfurt where share prices are down, but not to the extent of the drops seen on Monday.

The wild, volatile swings that began with the sub-prime mortgage crisis in the United States has spread around the world.

The impact on individual countries is a hot topic. Here for example, British Cabinet minister Ed Balls predicts the United Kingdom should weather the storm.

"It shows that the global economy is under real pressure. The good thing from Britain's point of view is that inflation is low, our interest rates are low and have come down," said Balls.

Perceived fear is the real threat dragging the stock markets down and wiping off billions in stock values in the process says Holger Schmieding, the chief European economist at Bank of America in London.

"At the moment you could say that equity markets are threatening to project some of the U.S. economic weakness into Europe and other places of the world," said Schmieding. "We have a great fear factor current in markets and such fears can cause turbulence for a while."

Many European traders say President Bush's proposed U.S. tax-cut stimulus package designed to encourage spending might not be enough. The widespread worry is a global recession could follow a U.S. recession, but Mr. Schmieding says we are not there yet.

"At the moment it still looks much more likely that the U.S. is heading for stagnation, but the risk of a U.S. recession has of course increased over the last few weeks, substantially," added Schmieding.

But the current climate remains very depressed around the world and that is unlikely to change anytime soon as people worry about the impact this downturn might have on jobs, pensions and investments in general.

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