U.S. Turmoil Fails to Carry Through to Europe

World stocks were at near three-year lows on Tuesday but fears of a major market meltdown failed to carry through from Wall Street to Europe as confidence in bank rescue packages persisted.

The U.S. Congress's rejection of a bank rescue plan tore nearly 9 percent off the broad S&P 500 on Monday but European shares and many Asian stock markets clawed back from early losses on hopes the U.S. plan would eventually go through.

U.S. stock index futures also pointed to a higher opening, suggesting belief that Monday's selloff was over-done.

"It's certainly my working assumption that there (will be) some sort of agreement reached in the U.S. and based on that I would expect the market to recover quite strongly from yesterday's sell-off," said Darren Winder, equity strategist at Cazenove.

Angst over the battered financial sector continued, nonetheless, with Belgian-French financial services group Dexia

getting a 6.4 billion euro ($9.18 billion) capital boost from public shareholders to help it fight the global credit crisis.

Ireland also offered to guarantee all bank deposits for two years to improve banks' access to funds on international markets. It also guarantees covered bonds, senior debt and dated subordinated debt.

Money markets remained on life support with benchmark rates continuing to climb, albeit distorted by the final day of the third quarter.

European stocks fell as much as 2 percent in early trading and Japan's Nikkei closed 4.12 percent lower after the deep losses on Wall Street in the wake of Congress's failure to agree a $700 billion plan to buy up toxic debt from the financial industry.

Globally, MSCI's main world stock index, a benchmark for many leading investors, was down 0.7 percent, adding to a 6.84 percent loss on Monday that saw the index's market capitalization plunge $1.73 trillion.

But the FTSEurofirst 300 index of top European shares recovered to gain 0.6 percent.

"No one really expected a no vote (in Washington), but it's encouraging that they're clearly going to vote on this again," said one equities trader in Europe.

Earlier, the Nikkei average hit a three-year closing low, shedding 483.75 points to 11,259.86, the lowest finish since June 2005. It earlier lost nearly 5 percent.

Other Asian stocks recovered, however. Hong Kong's Hang Seng index closed 0.8 percent higher, while South Korea's KOSPI pared losses to end down 0.6 percent. Both had fallen more than 5 percent early in the day.