LONDON - WORLD markets showed further signs of recovery on Tuesday, with most Asian and European stocks rising on hopes of another US economic stimulus package and a thaw in frozen credit markets.

Investors took their cue from Wall Street where stocks soared overnight as Federal Reserve chief Ben Bernanke threw his support behind another government spending package to kick-start the world's largest economy.

'A strong finish on Wall Street last night as the previously frozen credit markets continue to thaw following recent government intervention has lifted sentiments in many Asian markets, and the gains look set to continue into Europe,' said CMC Markets dealer Matt Buckland on Tuesday.

In Asia, Tokyo jumped 3.34 per cent as Sydney gained 3.9 per cent. But Seoul closed down 0.95 per cent and Hong Kong stocks closed 2.02 per cent lower.

'Short-term money markets are also relatively calm,' said Masatoshi Sato, a broker at Mizuho Investors Securities. The global financial problems appeared to have receded somewhat for now, he added.

In Wall Street action on Monday, New York's Dow industrials index had leapt 4.67 per cent.

But market watchers said recession fears in the United States, Japan and Europe, as well as jitters about the outlook for corporate earnings, may limit the scope for a further rebound on battered global stock markets.

China's weaker-than-expected economic growth figures released on Monday highlighted the extent to which the credit crunch has spread around the world.

'While the risks of financial meltdown are receding, the economic downturn is intensifying as data in the US, eurozone and Asia has shown in the last few days,' said analysts at UBS.

In the foreign exchange market on Tuesday, the euro fell to a 19-month low point of US$1.3237 in early morning trading, on concerns about slowing European economic growth, dealers said.

The single currency later stood at US$1.3250, down from US$1.3343 late in New York on Monday. The US unit rose on signals of a possible plan to stimulate the US economy as evidence mounts of a slowdown in Europe, traders said.

Governments have pumped billions of dollars into troubled banks in recent weeks while central banks have injected huge amounts of cash into money markets in an effort to ease a credit crunch.

The danger of a 'global catastrophe' has decreased after world governments intervened to boost liquidity and confidence in the financial system, Australian central bank chief Glenn Stevens said.

Analysts agreed, noting that the cost of one bank borrowing from another had eased, suggesting that the credit crunch is abating somewhat.

'There are tentative signs that the worldwide measures taken by various governments to shore up the banking sector are starting to work,' said NAB Capital economist David de Garis.

Governments continued their efforts to keep credit flowing and ward off a financial system meltdown.

The French government said on Monday that it would inject 10.5 billion euros (S$20.5 billion) into the country's six biggest banks.

Sweden presented a plan worth some US$200 billion (S$295 billion) to help its financial sector if it comes under more pressure from the credit crisis.

Australia's corporate watchdog on Tuesday extended a ban on covered short selling of shares until next month, saying the volatile market needed more time to settle.

Critics of short-selling - when investors sell shares they do not yet own in order to profit later from an anticipated fall in prices - say the practice has contributed to the recent plunges on global stock markets. -- AFP