Stocks in Europe rose Wednesday, defying declines in the U.S. and Asia, as investors awaited potential new action from the Federal Reserve to kick start the world's largest economy.
In a sign of the wild movements seen on financial and commodities markets in recent weeks, the price of gold, which had surged in recent weeks as investors fled into save-haven assets, plummeted 4.4 percent to $1,779, more than $100 below a new record reached just days ago.
Markets are likely to continue fluctuating ahead of Friday's speech by Fed Chairman Ben Bernanke at an economics conference in Jackson Hole, Wyoming. Investors hope Bernanke will signal a third round of massive bond-buying to boost the faltering U.S. recovery.
Buoyed by this hope, Britain's FTSE 100 closed 1.5 percent higher at 5,205.9 points. Germany's DAX jumped 2.7 percent to 5,681 and France's CAC-40 added 1.8 percent to 3,139.5.
Stocks on Wall Street, meanwhile, slipped in noon trading, with the Dow Jones Industrial Average and the broader S&P 500 both down 0.2 percent at 11,156.7 and 1,159.9 respectively.
The declines follow big jumps Tuesday and came despite an unexpected 4 percent increase in demand for durable goods in July. The Commerce Department reported orders for autos and auto parts jumped 11.5 percent, the most in eight years. Aircraft orders, a volatile category, soared 43.4 percent, after falling 24 percent in June.
But the positive report failed to generate any sustainable gains on Wall Street.
Analysts have warned that any long-term stabilization in global stock markets will likely only come once there is a better plan to get the U.S. economy to grow faster and create more jobs as well as a lasting solution to the eurozone's debt crisis.
"If Bernanke does not pull a rabbit out of the hat at Jackson Hole on Friday risk trades could look vulnerable once again," analysts at Credit Agricole cautioned.
Fresh data out of the eurozone indicated that some businesses are already preparing for potential troubles.
Germany's closely watched Ifo index of business optimism fell more than expected in another negative signal about Europe's largest economy. The index fell to 108.7 for August from 112.9 in July. Market analysts had expected a smaller drop to 111.0.
"August's drop in Ifo business confidence adds to the growing evidence that the German economic recovery has faltered," analysts at Capital Economics wrote in a note, adding that a slowdown for the eurozone's growth engine is set to hurt other members of the currency union that are still fighting to pull themselves out of crisis.
The European Union's statistics office, meanwhile, said that industrial new orders in the currency union dropped 0.7 percent in June from the previous month. In May, industrial orders had grown 3.6 percent.
Earlier in Asia, Japan's Nikkei 225 index fell 1.1 percent to close at 8,639.61 after opening higher early Wednesday.
Sentiment was dented after Moody's Investors Service downgraded Japan's credit rating to Aa3 from Aa2, citing weak growth prospects for the world's No. 3 economy, massive government debt and constant political uncertainty. The new rating is three notches below Moody's top Aaa rating.
The downgrade, which puts Moody's rating in line with other major credit rating agencies, is the latest blow for Japan after its economy remained mired in recession in the second quarter due to tumbling factory production and exports following the March 11 earthquake and tsunami.
South Korea's Kospi dropped 1.2 percent, Hong Kong's Hang Seng tumbled 2.1 percent and Australia's S&P/ASX 200 fell 0.1 percent. Markets in Singapore, Taiwan and Indonesia also fell.
Mainland Chinese shares were mixed with the benchmark Shanghai Composite Index falling 0.5 percent to 2,541.09 while the Shenzhen Composite Index edged 0.1 percent higher to 1,144.74.
Oil prices rallied after U.S. crude supplies unexpectedly fell last week. Benchmark oil for October delivery jumped 67 cents to $86.05 a barrel on the New York Mercantile Exchange. In London, Brent crude for October delivery gained $1.44 cents to $110.75 on the ICE Futures exchange.
The euro slipped 0.3 percent to $1.439, while the dollar rose 0.1 percent to 76.76 yen.
Pamela Sampson in Bangkok and Christopher S. Rugaber in Washington contributed to this story.