Asian markets were mixed after a day of global market turmoil sparked by the emergency sale of Bear Stearns, one of the world's biggest investment banks.
Shares in Europe have rebounded from Monday's heavy losses, following a largely positive session in Asia.
Tokyo's Nikkei stock index took heart from a late-session recovery on Wall Street and gained 1.5% after shedding 3.5% on Monday.
In London the FTSE 100 index was up 1.8%, in Frankfurt the Dax added 1.7% and in Paris the Cac 40 gained 1.4%.
Traders bet that the US Federal Reserve could cut interest rates by as much as 1% at its meeting later.
Asian markets were largely higher, Tokyo's Nikkei average closed up 1.5%, Hong Kong's Hang Seng added 1.3% and Mumbai's Sensex was up 1.4%.
In other trading, Taiwan shares were up, but Hong Kong shares fell.
Investors are expecting the US Federal Reserve to slash interest rates later on Tuesday to boost the US economy.
President George W Bush acknowledged the economy was in challenging times, but said the authorities had taken strong action.
Some think it might cut its benchmark Fed funds rate by one percentage point.
Wall Street had a rollercoaster day on Monday, with the benchmark Dow Jones average ending in positive territory - up 0.18% - after tumbling in early trading.
The rebound recovers some, but not all, of the losses on Monday.
European shares fared worse, with the UK's FTSE 100 index, France's CAC 40 and Germany's Dax all tumbling by more than 3%.
Investor fears
Hong Kong's Hang Seng and Mumbai's Sensex were also badly hit in Monday trading, shedding 6.5% and 5.2% respectively.
Shares on Wall Street had a volatile session on Monday.
Act decisively
The Dow Jones industrials average ended 0.18% higher, after tumbling in early trading.
European shares had fared worse.
The UK's FTSE 100 index, France's CAC 40 and Germany's Dax slumped by more than 3%.
Investors fear that the collapse of Bear Stearns, one of Wall Street's biggest names, means that the credit crunch is escalating, hastening the onset of a worldwide recession.
Investors fear that the collapse of Bear Stearns, one of Wall Street's biggest names, means that the credit crunch is escalating, hastening the onset of a worldwide recession.
When need be, we will act decisively, in a way that continues to bring order to the financial markets US President George W Bush
They are now awaiting results from some of the other key US investment banks, with both Goldman Sachs and Lehman Brothers reporting their latest results.
The Federal Reserve is expected to cut its key interest rate by an unprecedented 1% when it meets later on Tuesday in an attempt to ease recession fears.
central bank action
This would be on top of Sunday's move to reduce its separate discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25%.
On Monday central banks in both the UK and US moved to ease the crisis.
The step was an attempt to restore declining confidence in the banking sector.
The Bank of England injected £5bn to boost lending among banks, while the Fed cut its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25%.
US President George Bush earlier attempted to reassure investors, accepting that the American economy faced "challenging times" but insisting that the Fed was "on top of the situation".
And US President George Bush attempted to reassure investors, accepting that the American economy faced "challenging times" but insisting that the Fed was "on top of the situation".
"When need be, we will act decisively, in a way that continues to bring order to the financial markets," he said. "In the long run, our economy is going to be fine."
"When need be, we will act decisively, in a way that continues to bring order to the financial markets," he said. "In the long run, our economy is going to be fine."
With credit markets taking a battering, investors have clamoured for the safety of hard assets and commodities - oil prices were up on Monday and gold hit a record high of $1,032.70 at the London Bullion Market.
Investment fears
Leading American and European investment banks, such as Lehman Brothers and UBS, were hammered in Monday trading.
"Investment banks are getting their heads handed to them, but at the end of the day the Federal Reserve is stepping up every time and creating a process by which the markets will be allowed to recover," said Michael Williams at Tocqueville Asset Management in New York.
Investors' confidence has been hit by the problems at Bear Stearns.
The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.
The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.
The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.
Worries about the credit crisis and the health of the banking industry also undermined the dollar.
It fell to 95.72 yen, its lowest level in more than 12 years. The euro also hit a record against the dollar, buying $1.5904.
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