Domestic factors went out the window as panicky investors scrambled to sell stocks and bonds in the main financial centers of New York, London, Frankfurt, Paris, Tokyo and Hong Kong.
In New York, the Dow Jones Industrial Average was up one point at 2 P.M. EST after falling as many as 50 points earlier in the session.
By the close, other markets had recovered a fair amount of lost ground.
Some analysts wondered why investors were so upset by U.S. events.
"Unless the Fed goes bananas with hiking rates, we expect interest rates to fall further in continental Europe," said Ruth Lea, economist at investment bank Lehman Brothers in London.
Fears that the Fed -- the U.S. central bank, the Federal Reserve -- was about to tighten monetary policy set off the panic in Europe. But the signal for wholesale selling was an announcement by the German Bundesbank of a 20.6 percent annualized growth rate for German M3 money supply in January.
At one point ?12.15 billion ($18.16 billion) had been knocked off the value of leading British companies. By close, losses were reduced to about ?3.7 billion.
The Financial Times-Stock Exchange index found support at 3,200 around midday and closed 22.5 points lower at 3,248.1 after an earlier 75-point loss.
The CAC-40 index of leading French shares closed down 38.46 points or 1.76 percent at 2,144.66.
The Frankfurt share market fell over 3.5 percent after the M3 news, but ended the day down 1.84 percent at 2,018.69.
Asian share prices were also bludgeoned by falling bond prices and rising interest rate worries and Tokyo was also hit by a U.S. newspaper report that Washington was poised to impose sanctions on Japan.
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