European equities rebounded on Thursday after sliding the previous day on unfounded rumours of a France credit rating downgrade and worries over Societe Generale's Greek debt exposure.
The Paris market rallied 2.19 percent, one day after plunging 5.45 percent, while London jumped 1.85 percent and Frankfurt 2.50 percent.
Madrid meanwhile soared 2.80 percent and Milan 2.74 percent, again after very sharp losses Wednesday on the back of fresh investor nerves about the eurozone debt crisis.
"Panic was laid bare yesterday by the pace at which rumours ... spread through the market," said Rabobank analyst Jane Foley in London.
"The market has come to accept that French banks have a relatively high exposure to Italian and peripheral debt but yesterday's reaction appeared extreme."
Societe Generale's share price jumped 6.63 percent to 23.65 euros on Thursday, following losses of up to 20 percent Wednesday, as the French banking giant denied it was facing trouble over its Greek exposure.
Other banks, which also suffered badly on Wednesday, staged similar gains on Thursday.
"So much for the rally," said IG Index sales trader Will Hedden.
"Speculation surrounding Societe Generale has smashed banking stocks across Europe. Initially this was a result of rumours that France would be the next major power to lose AAA status.
"Confirmation from all three major rating agencies that this was not the case did not stop the sell-off. Now the rumour is that a French bank is selling its gold reserves to fight off the current crisis."
In foreign exchange deals, the dollar sank as low as 76.31 yen in early morning deals as investors flocked to the relative safety of the Japanese currency. That was not far from its post-World War II low of 76.25 yen.
The dollar later stood at 76.59 yen, down from 76.83 yen in New York on Wednesday. The euro meanwhile firmed to $1.4241 from $1.4168.
Gold prices pulled back to $1,786.10 per ounce, after hitting a fresh record high of $1,814.95 in Asian deals as investors sought the safe-haven precious metal.
Asian stock markets mostly fell on Thursday but closed off their early lows as some traders went bargain-hunting despite Wednesday's huge falls in Europe and on Wall Street.
New York's Dow Jones Industrial Average plummeted over four percent Wednesday, more than wiping out a rebound on Tuesday as European debt troubles and worries of a new US recession kept investors nervous.
European debt woes flared up again on Wednesday when rumours circulated that France was in danger of seeing its top-notch credit rating downgraded after last week's historic cut to Washington's rating by Standard and Poor's.
However, the French government categorically denied that it might be the next major country to lose its cherished AAA status and the ratings agencies said they did not plan to downgrade.
"The French government is aware that the market is lining up France as the next domino in the sovereign debt crisis and, despite reassurances from the three main credit ratings agencies that the outlook for French debt is stable, the government appears to be taking defensive action," said Foley at Rabobank.
Financial markets have suffered dizzying losses in recent days and weeks amid mounting concern that the eurozone debt crisis and weak US economy could help push the world back into recession.
However, they staged a brief rally earlier this week after the US Federal Reserve indicated that it would keep interest rates on hold near zero for at least two years.
At the same time, European Central Bank intervention appeared to have calmed the debt market for the government bonds of Spain and other debt-laden peripheral eurozone nations.
The London stock market took an additional hit on Wednesday after the Bank of England downgraded its 2011 growth forecast for the struggling British economy.