LONDON - US AND European share prices bounced back on Tuesday after huge losses a day earlier, with market sentiment bouyed by fresh official moves to stanch a credit crisis, stabilise shaky banks and protect savers.

Wall Street opened higher a day after Tuesday's global collapse, and after the US Federal Reserve opened a new front in a campaign to restore market confidence.

The US central bank said it would provide financial support to strapped companies by accepting 'commercial paper', or short-term debt, to help them meet critical expenditures: in effect shoring up US businesses.

The European Central Bank announced plans to join other central banks in a scheme to boost the provision of dollars to cash-strapped commercial banks, a move aimed at inducing them to step up their lending.

In New York the Dow Jones Industrial Average rose 0.76 per cent to 10,031.64 in the first trades a day after slumping below 10,000 for the first time in four years.

The Nasdaq added 0.43 per cent to 1,870.98.

The latest effort by the Fed in an all-out war against the credit crunch creates a new 'liquidity backstop' for corporate finance and was established after the US Treasury determined it was 'necessary to prevent substantial disruptions to the financial markets and the economy,' the central bank said.

'It's a good start,' said Mr Andrew Busch at BMO Capital Markets, who said it may reassure banks and get credit flowing.

'In the money markets now, there is no trust to lend money to anything but Treasuries and overnight only as this is the safest and shortest arrangement for money. Banks are completely overloaded with money, but no lending is occurring except in this structure.'

The positive start to the trading day on Wall Street lifted spirits in Europe, where the London FTSE 100 index was up 2.67 per cent, the CAC 40 in Paris gained 1.95 per cent while the Frankfurt Dax added 1.51 per cent.

The European Union mobilised on Tuesday to protect depositor savings by more than doubling deposit guarantees to at least 50,000 euros, taking joint action against the global financial firestorm for the first time.

Desperate to restore confidence in the banking system, the European finance ministers also vowed to ride to the rescue of big banks whose collapse would otherwise threaten broader financial stability.

'We have agreed to assure the solidity and stability of our financial system and carry out any measure to reach that objective,' said French Finance Minister Christine Lagarde, whose country holds the EU's rotating presidency.

'Europe is united in the face of the financial crisis and determined to act in a coordinated way,' she said.

In the first concrete joint action to protect the general public against the financial crisis, the ministers agreed to increase minimum bank deposit guarantees to 50,000 euros (S$98,652) from 20,000 euros currently.

In Asia on Tuesday, Tokyo fell by 3.0 per cent, while Sydney jumped 1.7 per cent after Australia's central bank sprang a surprise interest rate cut.

The London stock market was initially rocked on Tuesday by reports that Royal Bank of Scotland (RBS), Barclays and Lloyds TSB had held a meeting with British finance minister Alistair Darling on Monday to discuss a possible capital injection.

RBS saw its share price plunge by almost 40 per cent early on, while the rest of the banking sector also took a big hit.

RBS and Barclays categorically denied they had sought capital from the government.

In Asia on Tuesday, Tokyo fell by 3.0 per cent, while Sydney jumped 1.7 per cent after Australia's central bank sprang a surprise interest rate cut.

Asian markets in general ended well off their lows after the Australian central bank slashed interest rates by a hefty one percentage point, a dramatic move aimed at shielding the economy from the ongoing financial turmoil.

The move sparked hopes policymakers in other countries could follow suit, analysts said.

Russia's leading RTS stock market on Tuesday closed slightly lower, a day after posting a record 19-per cent fall, following intervention by the authorities to bolster investor confidence.

The headline index on the dollar-denominated RTS bourse finished down 0.95 per cent at 858.16 points after a trading session whose start was suspended by regulators for several hours.

In the Arab world stock markets plunged as panic over the global financial crisis continued to grip investors, wiping billions of dollars off the value of shares.

The market in oil powerhouse Saudi Arabia sank by seven percent while the biggest percentage loss was reported in Egypt, where the key index plummeted by more than 16 percent to its lowest level in two years.

In all, the seven Arab stock markets in the energy-rich Gulf have shed about 150 billion dollars of their capitalisation in the past three days alone to around 800 billion dollars (S$1.69 trillion). -- AFP