Continuing unease over Europe's debt crisis pushed investors out of global stock markets Wednesday, even though pressure on the interest rates European countries pay to borrow money eased after skyrocketing a day earlier.
Tuesday saw a run on both European stocks and bonds as investors questioned the viability of Italian Prime Minister-designate Mario Monti. The respected economist was put in place to right Italy's economy and hopefully stop the spread of the continent's debt crisis, which is already threatening Spain and even nipping at France.
The yield or interest rate on 10-year Italian bonds shot up past 7 percent _ the threshold that eventually forced Greece, Ireland and Portugal to seek bailouts.
But Wednesday brought a modest rally in debt markets _ and speculation that the European Central Bank was behind it. The bank only confirms its interventions each Monday for the week previous, but it has often moved in to buy the bonds of wobbly countries to push down their yields _ preventive medicine it hopes will avoid the need for future bailouts.
Italy, for one, is considered too big to rescue, but its 10-year yield fell back below 7 percent Tuesday, though it remains high at 6.85 percent. Spain and France also saw relief, with their yields falling to 6.17 percent and 3.53 percent.
Monti's announcement on Tuesday that he had secured broad support in Parliament initially provided some relief, but investors are unsure how long that will hold when his government imposes tough reforms. His cabinet was expected to be announced later Wednesday.
Greece's new prime minister Lucas Papademos' government also faces a crucial confidence vote later in the day. Both leaders are struggling to hold together shifting political alliances in order to push through unpopular reforms.
After days of carnage, Europe was mostly down again Wednesday.
Germany's DAX fell 1.0 percent to 5,871.51, while France's CAC-40 dropped 0.2 percent to 3,043.54. The FTSE index of leading British shares shed 1.2 percent to 5,452.07.
American markets were also set to open down. Dow futures fell 0.5 percent to 11,979, while S&P futures dropped 0.7 to 1,246.
The euro slid a further 0.3 percent to $1.3463 after a day of big losses.
That reflects analysts' concerns that the crisis is far from over, and that more European Central Bank intervention is the only way out of it. The ECB is very reluctant to increase its involvement _ refusing to be a lender of last resort for troubled countries, for instance _ but many see no other solution.
"If there is a long-term solution to the crisis this will be based upon the ability of politicians to win back credibility via pledges to maintain good budgetary practices. This morning's expected announcement of a new cabinet in Italy and a successful vote of confidence in the new Greece PM today will be a step in the right direction," said Jane Foley of Rabobank. "However, political maneuvering takes time as does the implementation of budget reform. The ECB could be instrumental in buying some of this time."
Earlier in the day, Asian markets were also pessimistic about Europe's prospects.
Japan's Nikkei 225 index lost 0.9 percent to close at 8,463.16, a six-week closing low. Hong Kong's Hang Seng dropped 2 percent to 18,960.90 and South Korea's Kospi shed 1.6 percent to 1,856.07. Benchmarks in Singapore, Taiwan, and Australia also fell.
Mainland China's benchmark Shanghai Composite Index lost 2.5 percent to 2,466.96, its lowest closing this month. The smaller Shenzhen Composite Index dropped 2.6 percent to 1,059.24.
Energy prices, which typically rise when economies are strong because demand increases, were also hit by the unease. Benchmark cruse fell 45 cents to $98.92 a barrel in electronic trading on the New York Mercantile Exchange
Pamela Sampson in Bangkok and Fu Ting in Shanghai contributed to this story.