Global financial markets endured a rollercoaster ride today as investors struggled to balance robust corporate earnings and signs of strong economic growth against fears of a global credit crunch.
Data showing the US economy grew at a faster-than-expected pace in the second quarter pulled stocks up from deep losses earlier. Bonds pared gains and the dollar rose against the yen.
Investors are torn between robust economic fundamentals in the world economy and deteriorating credit markets which could curb future corporate activity as fallout from the riskier end of the US home loan market threatens to spread.
"The fundamentals from the earnings season are still reasonably robust ... But there's lots of volatility and people are essentially driven by concerns over credit markets," said Nick Nelson, strategist at UBS.
The FTSEurofirst 300 index was steady in choppy trades. MSCI main world equity index fell more than 1 percent to a six-week low before trimming losses.
The September Bund future was up 5 ticks.
The dollar rose against the yen after the US data, which showed economic growth rebounded during the second quarter to its strongest pace since the beginning of last year.
Earlier, hectic buying of the yen, long under pressure as a funding vehicle for risky carry trades, had pushed the low-yielding currency to a 3-month high against the dollar.
Data on core PCE (Personal Consumption Expenditure), the Federal Reserve's favourite gauge of inflation, showed price pressures subsided. US rate futures show an 82 per cent chance the Fed will cut interest rates by the year-end.
Confusion over the future of a funding deal for private equity firm KKR to buy Alliance Boots added to investor fears that troubles in US high-risk subprime mortgages were no longer a ring-fenced problem.