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European shares steady after sharp losses European shares steady after sharp losses
(about 3 hours later)
European markets have recovered some ground after a day of steep losses sparked by news that the US Federal Reserve plans to scale back its stimulus programme. Shares have recovered some ground from Thursday's steep losses, which came after the US Fed said it could scale back its stimulus programme.
The main share indexes in the UK, Germany and France recorded modest gains of up to 0.8% in early trade. The main share indexes in the UK, Germany and France recorded gains of up to 1% in morning trade.
Earlier, Asian stocks had been mixed, falling sharply at first before recovering some ground later on.Earlier, Asian stocks had been mixed, falling sharply at first before recovering some ground later on.
On Thursday, the Dow Jones fell by 2.3% - its biggest fall of the year so far. On Thursday, leading US shares saw their biggest fall of the year so far - with the Dow Jones dropping 2.3%.
Neil Marsh, strategist at Newedge, was one who said Thursday's sell-off had been an overreaction: "We've had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish." China worries
In Asian trading, South Korea's main index dropped 1.5% while Australia's lost 0.4%. However, Japan's Nikkei reversed early losses after the weakening yen boosted shares in exporting companies.
'Force-fed steroids'
The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE)The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE)
However, on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show sign of improvement the central bank could start to slow down its bond purchases as early as this year and end the programme next year. However, on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show signs of improvement then the central bank could start to slow down its bond purchases as early as this year, and end the programme next year.
The bond-buying programme has been seen as a key factor behind the rise in stock markets in recent months, and the Fed's comments triggered a sharp sell-off.
Another factor that spooked markets was news of record high borrowing costs in China this week, raising fears of a Chinese credit crunch and a stalling of the world's growth engine.
Markets remained under pressure on Friday, but some analysts said the falls seen the previous day had been an overreaction.
Neil Marsh, strategist at Newedge, said: "We've had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish."
Commodities also recovered slightly from their sharp falls in the previous trading session.
The gold price recovered from its three-year low to stand 1.5% higher at $1,297.01 an ounce, and Brent crude oil ticked up 45 cents to $102.60.
Bonds were also largely steady.
'Force-fed steroids'
The excess liquidity in the US has meant a lot of funds have been flowing into emerging markets, especially in Asia.The excess liquidity in the US has meant a lot of funds have been flowing into emerging markets, especially in Asia.
"Asia has benefited from US capital inflows, partly in relation to QE," said Mitul Kotecha, from Credit Agricole CIB."Asia has benefited from US capital inflows, partly in relation to QE," said Mitul Kotecha, from Credit Agricole CIB.
"It has been force-fed with steroids, and now that the steroids are going to be pulled back what will happen is a period of transitional volatility that can continue through summer.""It has been force-fed with steroids, and now that the steroids are going to be pulled back what will happen is a period of transitional volatility that can continue through summer."
Paring losses The dollar slipped back a little on Friday from its recent two-week highs against a basket of currencies but remains high.
The sharp drop in the value of the yen against the dollar boosted Japan's stock market, with the Nikkei ending up 1.7%. The sharp drop in the value of the yen against the dollar over the past couple of days boosted Japan's stock market, with the Nikkei ending up 1.7%.
Exporters led the gains with Suzuki Motor jumping nearly 4% and Fast Retailing surging more than 6%.
A weak yen is good news for Japanese exporters as it makes their goods cheaper overseas and boosts profits that are repatriated back home.A weak yen is good news for Japanese exporters as it makes their goods cheaper overseas and boosts profits that are repatriated back home.
Hong Kong and Shanghai indexes pared earlier losses to end the day down 0.5% and 0.2% respectively. Elsewhere in Asia, South Korea's main index dropped 1.5%, Australia's lost 0.4%, while Hong Kong and Shanghai indexes pared earlier losses to end the day down 0.5% and 0.2% respectively.
On Thursday, stocks in China had fallen partly because of concerns over growth in the mainland after disappointing manufacturing activity data as well as a concern over a credit crunch.
However, in late trade on Friday the recovery was led by financial stocks after funding costs came off a record-high, easing concerns over a broader credit squeeze in China.