Wall Street stocks fell sharply on Wednesday, erasing most of the previous day's gains, on fears of trouble in the French banking sector, which has significant exposure to shaky European debt.
On top of concerns about US growth, attention is still on Europe, where investors worry Italy and Spain may be the next countries unable to repay their debts.
French president Nicolas Sarkozy cut short his vacation for emergency meetings with government ministers amid concerns that France could become the next AAA-rated country to get downgraded.Worries about the US economy and high levels of public debt in Europe have sent stock cascading over the last two weeks.
In India, the Bombay Stock Exchange's Sensex ended the day with a 272.60 points, or 1.62%, rise at 17,130.51 points after falling to a 14-month low on Tuesday.
US financial stocks led the decline on worries any French bank problems could spread to them. Large financial institutions fell sharply, including Bank of America Corp down 11.2 % to $6.76.
A Societe Generale spokeswoman denied rumours of trouble, but French banks were hit hard in Paris trading. Societe General, where US traders have focused their attention, fell 21% and BNP Paribas lost 13%.
“Memories are fresh. People who during the last financial crisis did not sell right away, next time around are ready to sell quick and ask questions later. People are seeing this as 'next time',” said Ed Crotty, chief investment officer at Davidson Investment Advisors in Great Falls, Montana.
Stocks rallied on Tuesday after the Federal Reserve promised to keep interest rates near zero for at least two more years. The S&P 500 index had its best performance in more than two years.