LONDON - EUROPE'S stock markets fell sharply in morning trading on Wednesday but Asian shares mostly finished the day sharply higher after Democrat Barack Obama was elected US president.

'There is an element of 'buy the rumour, sell the news' that is driving some profit-taking to kick in,' said Martin Slaney, head of derivatives at financial spread betting group GFT in London.

In late morning trading in Europe, the London market was down 2.68 per cent, Paris shed 2.88 per cent and Frankfurt lost 2.13. Madrid dropped 1.48 per cent and Zurich dived 2.52 per cent.

Earlier the Tokyo stock market had ended the day with a gain of 4.46 per cent, Hong Kong jumped 3.2 per cent, Seoul gained 2.4 per cent and Sydney won 2.9 per cent.

Shanghai closed up 3.16 per cent, while Mumbai fell 4.81 per cent and Taiwan share prices closed down 0.29 as investors pocketed recent gains.

'The (Seoul) market rose sharply thanks to an overnight Wall Street rally and a continuing buying spree by foreign investors on hopes that the next American leader would act to boost the sluggish US economy,' Goodmorning Shinhan Securities Kim Jung-Hyun told Yonhap news agency.

Wall Street was to reopen at 1430 GMT (10.30pm Singapore time). US stocks had staged a powerful rally on Tuesday as Americans voted for a new president. The Dow Jones Industrial Average surged 3.28 per cent, the tech-heavy Nasdaq added 3.12 per cent and the Standard & Poor's 500 index shot up 4.08 per cent.

World leaders hailed Obama's historic triumph but there were also calls for the global superpower to change the way it does business.

Celebrations erupted in capitals around the world. A national holiday was declared in Kenya - where Mr Obama's father was born - to welcome the first black US president.

European Commission president Jose Manuel Barroso called for the election to usher in a 'new deal' between the United States and the rest of the world to tackle the global financial crisis and other troubles.

'This is a time for a renewed commitment between Europe and the United States of America,' Mr Barroso said in a statement. 'We need to change the current crisis into a new opportunity. We need a new deal for a new world.'

Chancellor Angela Merkel's cabinet was on Wednesday due to approve a stimulus package aimed at helping Europe's biggest economy and the world's top exporter avoid the worst effects of a sharp global slowdown.

The German economy, which accounts for a third of eurozone activity, is widely expected to enter a serious slowdown and may already be in a technical recession if, as expected, output fell for the second straight quarter in the July to September period.

Investors across Europe were meanwhile gearing up for further cuts to interest rates on Thursday. The Bank of England was widely expected to cut its key lending rate by at least half a per centage point as recession looms in Britain amid a global financial crisis.

Some economists are even forecasting the BoE to follow up last month's emergency half-point reduction to 4.50 per cent with a cut of one per cent this time around.

Since the central bank's Monetary Policy Committee won independence from the government in 1997, it has never reduced British borrowing costs by more than 50 basis points.

The European Central Bank (ECB) is also set to cut its main lending rate sharply at a meeting on Thursday as inflation is falling fast in the eurozone.

Economists' consensus is for a cut of half a per centage point to 3.25 per cent. Late last month, the US Federal Reserve slashed its key lending rate by a half point to match a historic low of 1.0 per cent.