European share indexes have been volatile in Tuesday trading after a US financial rescue plan failed to gain Congressional backing.
US shares are expected to rise on opening after President George W Bush renewed calls for Congress to back the $700bn (£380bn) banking rescue plan.
With the US House of Representatives rejecting the $700bn (£380bn) rescue deal, the UK's FTSE 100 fell as much as 3% before recovering to rise 0.3%.
Although Wall Street saw sharp falls on Monday after Congress blocked the deal, investors appear hopeful a fresh plan can be agreed later this week.
Asian stocks had already seen big declines in Tuesday trading.
Mr Bush warned that if agreement is not reached, the US economy faces "painful and lasting damage".
US President George W Bush is due to speak shortly on the deadlock over the bailout plan.
Global shares have seen volatile trading since Monday's deal failure.
Bank shares hit
Bank shares hit
Following the US rejection of the rescue deal, a number of developments have hit the global financial sector:
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The UK's FTSE 100 index was up 0.3% or 14 points to 4,832 by 1300 BST, while Germany's Dax was 0.7% lower at 5,770 and France's Cac was up 0.3% to 3,957
Banking shares were the biggest fallers in London, as concerns grow about how the delay in securing a US rescue deal will hit the financial system
HBOS was down 10%, Royal Bank of Scotland was 6% lower
Japan's Nikkei index ended Tuesday down 4.1%, while Hong Kong's Hang Seng rose 0.8%
In Russia, trading was temporarily suspended on the country's two main stock markets
In the Republic of Ireland, the government announced that all bank deposits would be guaranteed for the next two years
European bank Dexia has received a state bail-out, costing the Belgian, French and Luxembourg governments a combined 6.4bn euros ($9.2bn; £5bn)
Following the US rejection of the rescue deal, a number of developments have hit the global financial sector on Tuesday:
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The UK's FTSE 100 index was up 0.3% or 14 points to 4,832 by 1300 BST, while Germany's Dax was 0.7% lower at 5,770 and France's Cac was up 0.3% to 3,957
Banking shares were the biggest fallers in London, as concerns grow about how the delay in securing a US rescue deal will hit the financial system
HBOS was down 10%, Royal Bank of Scotland was 6% lower
Japan's Nikkei index ended Tuesday down 4.1%, while Hong Kong's Hang Seng rose 0.8%
In Russia, trading was temporarily suspended on the country's two main stock markets
In the Republic of Ireland, the government announced that all bank deposits would be guaranteed for the next two years
European bank Dexia has received a state bail-out, costing the Belgian, French and Luxembourg governments a combined 6.4bn euros ($9.2bn; £5bn)
Analyst Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said European investors were hopeful the US will eventually pass the bailout plan.
Analyst Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said European investors were hopeful the US will eventually pass the bailout plan.
"This deal is not dead in the water and there are hopes that when Congress reconvenes it could still go through," he said.
"This deal is not dead in the water and there are hopes that when Congress reconvenes it could still go through," he said.
Day of turmoil
US Treasury Secretary Henry Paulson, the architect of the rescue plan, said it was vital to get a new deal agreed.
Henry Paulson: 'This is much too important to simply let fail'
Congress will not meet again until Thursday - after a break for the Jewish New Year - with another vote unlikely before the weekend, the BBC's Jonathan Beale in Washington says.
The House's rejection of the bail-out plan came after a day of turmoil in the US and Europe, with Wachovia, the fourth-largest US bank, being bought by larger rival Citigroup.
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Monday also saw the partial nationalisation of Benelux banking giant Fortis by three governments, and UK lender Bradford & Bingley was taken into state ownership.
The US rescue plan, a result of tense talks over several days between the government and lawmakers, was rejected by 228 to 205 votes in the House of Representatives.
About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.
Mr Paulson said, after talks with the president, that the government's plan to address the crisis facing the US financial sector was much too important to be allowed to fail.
US regulators would use "all the tools available" to help the US economy, but their powers were "insufficient", he warned.
He added that he would be working with congressional leaders to get something done "as quickly as possible".
Analysts say that without a bail-out plan, the banks will be left to handle all their own bad mortgage debt as best they can and more of them will be in danger of going bust.
But after several hours of impassioned debate, the bill's opponents - the majority of whom were from the Republican Party - got their way.
They had raised concerns about both the content of the plan and the speed with which they were being asked to pass it.
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