Stocks in Europe and the U.S. tumbled Wednesday, a day after a Federal Reserve pledge to keep extremely low interest rates for two more years temporarily calmed investors’ jitters.

The Fed’s surprise announcement Tuesday that it would likely keep its Fed funds rate at near zero percent through 2013 to help the ailing U.S. economy fuelled a late Wall Street surge -- the Dow Jones industrial average rallied 6 percent just in the final hour of trading, one of the biggest turnarounds ever seen.

That continued into Asian and European trading sessions Wednesday, although traders remained nervous after the market turmoil of recent weeks, which has sent many global markets officially into bear market territory -- falling 20 percent from recent peaks. That nervousness became more acute as the U.S. open loomed and European markets gave up all their earlier gains.

“So far, panic has eased but fear remains,” said Kit Juckes, an analyst at Societe Generale.

In Europe, the FTSE 100 index of leading British shares was down 1.4 percent at 5,093 while Germany’s DAX fell 2.5 percent to 5,814. The CAC—40 in France was 2.5 percent lower at 3,098.

In the U.S., the Dow Jones industrial average was down 2.7 percent at 10,940 while the broader, Standard & Poor’s 500 index fell 2.6 percent to 1,141.

Over the past few weeks, markets have suffered a severe reverse amid worries over the U.S. economic recovery and the country’s debt situation in light of a protracted debate in Congress to get the debt ceiling lifted. That contributed to last weekend’s announcement by Standard & Poor’s to downgrade the U.S.’s credit rating for the first time ever.

And in a sharp reversal of opinion, economists now believe there is a greater chance of another U.S. recession.

The other major market concern is Europe’s debt crisis. Investors have grown increasingly worried that Italy and Spain could become the next European countries to have trouble repaying their debts. Greece, Ireland and Portugal have already received bailout loans because of Europe’s 21—month—old debt crisis.

The fears have pushed investors to shun Spanish and Italian bonds, which have led to higher yields and even higher borrowing costs for the two countries.

The European Central Bank stepped in Monday and began buying billions of euros worth of their bonds. The move has helped to lower yields on Spanish and Italian bonds to around the 5 percent mark from over 6 percent. The two countries’ borrowing costs, though high compared to Germany and other euro countries, are considered manageable for now.

Earlier in Asia, the Shanghai Composite Index rose 0.9 percent to 2,549.18 and the smaller Shenzhen Composite Index gained 1.4 percent. Indexes in Taiwan and India also gained. Hong Kong’s Hang Seng jumped 2.3 percent to 19,783.67.

Japanese stocks underperformed somewhat as investors continued to fret over the export—sapping appreciation of the yen.

Japan’s Nikkei 225 index climbed 1.1 percent to close at 9,038.74 as the dollar headed near to post World War II lows against the yen. By mid—afternoon London time, the dollar was 0.9 percent lower at 76.40 yen, not far above the level last week that prompted the Bank of Japan to intervene in the markets.

Meanwhile, the euro was down 0.8 percent at $1.4246.

In the oil markets, prices fell from earlier highs as stock markets turned lower again. Benchmark oil for September delivery was up $1.34 to $80.64 a barrel in electronic trading on the New York Mercantile Exchange. Earlier oil prices had risen to $82.

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