Stock markets took another hit on Wednesday as European equities ended lower, after indices plunged overnight in Asia and the US.

The losses followed a sharp sell-off on Tuesday sparked by worries about the sustainability of Chinese growth and the outlook for the US economy.

However, European indices clawed back some of their sharp opening losses as US stocks mounted a modest rally. At midday in New York, the Dow Jones Industrial Average was up 0.8 per cent at 12.318.14 and the Nasdaq Composite added 0.7 per cent to 2,423.82.

At the close in Europe, the FTSE Eurofirst 300 was down 1.4 per cent to 1,485.58, following a 2.9 per cent slide – its biggest single-day decline in four years – in the previous session.

In London, the FTSE 100 fell 1.8 per cent to 6,171.5, while the CAC 40 in Paris shed 1.3 per cent to 5,516.32 and Frankfurt’s Xetra Dax lost 1.5 per cent to 6,715.44.

Stock markets across the Asia-Pacific region were weaker, continuing a global slump from the previous day that saw US stock indices posting their steepest drop since the September 11, 2001 terrorism attack.

In Asia, Japan led the falls as investors used the global slide as an excuse to lock in profits after a long bull run that sent the Topix index to a 15-year high earlier this week.

The Nikkei 225 Index, which was down by 700 points at one stage – its biggest single-session plunge since September 2001 – ended 2.9 per cent lower at 17,604.12, while the broader Topix shed 3.2 per cent to 1,752.74.

Chinese stocks, which recorded their biggest fall in a decade on Tuesday, steadied as the benchmark benchmark Shanghai Composite Index recovered 3.9 per cent to 2,881.07.

Malaysian stocks dropped, extending the biggest loss in almost six years, while Singapore ended 3.7 per cent lower and Seoul shares had their biggest fall in eight months.

“Markets that have risen faster than others will face a sharper decline as hedge funds reduce their exposure,” said Mary Ann Bartels, chief US market analyst at Merrill Lynch.

Government bonds however, benefited from the pain felt in equity markets as investors continued to seek higher quality assets.