LONDON - EUROPEAN and US stock markets rebounded on Thursday as governments rushed to protect ailing banks and their savers, while Asian shares ended mixed after world indices endured sharp falls a day earlier.

'It is hardly surprising that there should be something of a relief rally today,' said senior strategist Howard Wheeldon of BGC Partners in London.

Wall Street surged at the open as investors hunted for bargains after several sessions of vicious selling and mulled the latest initiatives to stem a global financial crisis.

The Dow Jones Industrial Average jumped 1.23 per cent to 9,368.89 points in the first trades after six days of steep losses.

'Trading will remain fragile for some considerable time, but we can hope that the worst of the panic might now be over,' said Simon Denham, managing director at Capital Spreads.

In late afternoon trade the London stock market rose 1.31 per cent, off earlier gains of more than three per cent, and after closing down more than five per cent on Wednesday.

Paris advanced 2.21 per cent on Thursday, and Frankfurt gained 0.94 per cent.

In Asia, Tokyo ended down 0.5 per cent Thursday but Hong Kong surged 3.3 per cent after it, along with South Korea and Taiwan, reduced borrowing costs Thursday.

Russia's leading RTS stock market on Thursday closed 10.91 per cent higher, rebounding from the previous day's sharp losses.

Central banks in the United States, Canada, Europe and China had Wednesday slashed their key interest rates in a bid to tackle an escalating economic crisis.

'The market finally got the coordinated action it was crying out for, when most of the major central banks cut rates,' Calyon analyst Stuart Bennett said on Thursday.

'The market is far from being stabilised completely,' said Toshihiko Matsuno, research head at SMBC Friend Securities.

'Investors still remain unsure if Washington will move to inject public money' into ailing banks. Overnight the US Federal Reserve pumped another 38 billion dollars into American insurance group AIG.

Iceland, battling national bankruptcy, said Thursday it had nationalised the country's biggest bank Kaupthing, completing a state takeover of the top three banks after Landsbanki and Glitnir were saved over the past week.

Elsewhere the Belgian, French and Luxembourg governments rode to the rescue of struggling bank Dexia for the second time in less than two weeks, pledging to guarantee money it borrows on the markets.

With interbank lending all but dried up, the three governments said that they would guarantee up to 4.5 billion euros (S$9 billion) in new money that Dexia aims to borrow on the markets.

Meanwhile Ireland extended its blanket guarantee on personal and corporate bank deposits to five foreign-owned banks on Thursday, the Department of Finance said.

The Tokyo stock market slipped in and out of positive territory on Thursday, before ending lower, a day after falling more than nine per cent - the biggest plunge in two decades.

Singapore rallied 3.4 per cent, Seoul won 0.6 per cent, while Sydney slipped 1.5 per cent and Taipei ended down 1.45.

Some dealers said it was too early to say whether markets were over the worst of the recent turmoil unleashed by a US housing market meltdown, as policymakers scramble to prevent banks collapsing and stop stock markets plunging.

Credit markets remained under severe stress, prompting the Bank of Japan to make its biggest one-day cash injection into the financial system since the crisis began.

'While rate cuts may not address the root cause of the problem, they do help the real economy and indirectly assist bank recapitalisation,' said UBS analysts.

'Officials need to act in unprecedented ways as fear itself seems to be the biggest fear.'

Meanwhile concerns lingered that central banks may have left little ammunition to take on the financial crisis and prevent a global recession. Some analysts said the rate cuts should have been bigger.

Central banks 'had to take the action after watching the chain reaction of the market plunges,' said Daisuke Uno, chief market strategist at Sumitomo Mitsui Banking Corp. 'But a half-point cut was such a stingy move.' Japan's central bank said it supported the rate cuts but was not participating as its own benchmark level was already low at 0.5 per cent.

In an effort to keep credit flowing, the Bank of Japan injected 4.0 trillion yen (S$58 billion) into the money markets on Thursday, the 17th straight business day it had pumped in cash. Other central banks continued their daily action of feeding markets with billions of dollars.