Stocks in Europe and the U.S. faltered Wednesday after two days of gains, but Asian markets jumped on speculation Japan might take new measures to spur its economy.
Markets in Europe and the U.S. had been bolstered this week by solid U.S. corporate earnings, a surprise improvement in German investor sentiment and relatively well-received Spanish bond auctions. An upward revision to the International Monetary Fund's global growth forecast also underpinned confidence.
How markets close out the week will depend on Spain's ten-year bond auction on Thursday _ if demand is weak, investors will likely fret again about the country's ability to get a handle on its debts. Europe's crisis will likely be discussed in a meeting this weekend of the finance ministers of the Group of 20 leading industrial and developing nations.
"A good test of investor's confidence in Spain will come tomorrow with the sale of ten year bonds," said Louise Cooper, markets analyst at BGC Partners. "However despite rising fear, we are not at crisis yet, with 10-year yields on Spanish and Italian debt still 1-2 percent below the unsustainable 7-7.5 percent yields of last autumn."
Spain has become the main source of concern in Europe's debt crisis as investors worry about the government's ability to push through a raft of austerity measures at a time when unemployment stands at a startling 23 percent and the economy is in recession.
The yield on the country's ten-year bond on Monday spiked above 6 percent. In the past two days, however, it has edged back down to more manageable levels below 6 percent.
Despite the modest drop in the yield, Spanish stocks continued to oscillate wildly. On Wednesday, the main IBEX index down 2.3 percent after the Bank of Spain reported that the total amount of bad loans on the books at the nation's banks rose to an 18-year high in February.
Elsewhere in Europe, the FTSE 100 index of leading British shares was 0.2 percent lower at 5,753 while Germany's DAX fell 0.8 percent to 6,749. The CAC-40 in France was 1.4 percent lower at 3,247.
The euro was also faring poorly in the risk-averse environment, trading 0.3 percent lower at $1.3074.
In the U.S., the Dow Jones industrial average was down 0.5 percent at 13,052 while the broader Standard & Poor's 500 index fell 0.4 percent to 1,386.
Earlier in Asia, sentiment was buoyed by indications that the Bank of Japan may do more to prop up the economy. Kyodo news agency reported that Deputy Governor Kiyohiko Nishimura's suggested the central bank might take additional stimulus steps to tackle deflation.
That helped the Nikkei 225 index in Tokyo to soar 2.1 percent to 9,667.26 and the dollar to rise 0.4 percent to 81.33 yen.
Other stock markets were up too, including Hong Kong's Hang Seng, which gained 1.1 percent to 20,780.73.
Mainland Chinese shares rose on hopes for financial reforms aimed at regulating private lending and creating new institutions to serve private borrowers better, analysts said. The benchmark Shanghai Composite Index rose 2 percent to 2,380.85. The Shenzhen Composite Index gained 2.1 percent to 956.49.
Oil markets were subdued, with the benchmark New York rate down 40 cents at $103.80 a barrel.
Pamela Sampson in Bangkok contributed to this report.