Government steps to shore up the banking system and unfreeze credit markets showed some signs of progress, but grim news from major economies reinforced fears of recession and hammered global markets.
US stocks bucked the global trend to end higher, clawing back some of Wednesday's steep losses despite news of layoffs in the auto-industry, a slowdown in industrial production and more warnings about the state of the economy.
Banks, which are at the heart of the crisis, were in the spotlight again.
Switzerland's top two banks, UBS AG and Credit Suisse Group AG (CS), took emergency measures to shore up their finances. In the United States Merrill Lynch and Citigroup reported heavy losses on bad loans and tough-to-sell mortgage securities.
In a sign of easing strains in the credit markets, rates that banks charge each other for loans mostly fell in response to radical moves by central banks to provide liquidity, bolster banks and loosen credit lines to institutions needing cash.
However, US financial institutions borrowed record amounts of cash from the Federal Reserve in the latest week, according to Fed data released on Thursday, indicating that credit conditions in the United States remain constrained.
European Union leaders vowed to shield their industries from the global crisis and pushed plans for a global summit to overhaul the world financial system.
Asian, European and emerging market stock markets took another battering on Thursday. Japan's Nikkei fell 11% in its worst one-day drop since the stock market crash of October 1987, oil fell more than 6% to below $70 a barrel, and European shares lost 5%.
But in New York, the allure of heavily battered shares drew buyers one day after Wall Street's worst day in more than 20 years. The Dow ended up 4.68% and the S&P 500 rose 4.25%, buoyed by consumer companies that benefit from lower oil prices. The dollar also rose.
“I think this is bargain hunting and there are some bargains out there. Some of these stocks are at historic lows,” said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
Wednesday's sharp fall had dragged the Dow down about 40% from its record closing high of 14,164.53 hit on October 9, 2007. Investors have pulled over $50 billion from stock funds so far in October, depressing prices in equities.
The rally in stocks drove up oil prices in electronic trade following the US settlement, with crude futures rising more than $3 a barrel.
In the real economy, the news was mostly grim.
Investment bank Merrill Lynch, which is to be acquired by Bank of America, wrote down $5.7 billion of toxic assets and Citigroup reported a quarterly net loss of $2.8 billion.
US home builder sentiment sank to an all-time low in October; motorcycle maker Harley-Davidson Inc cut its earnings forecast; General Motors said it would lay off 1,500 hourly workers; and big US manufacturers braced for a slowdown.
US industrial production marked its biggest drop in 34 years in September and factory activity in the US mid-Atlantic region fell to an 18-year low in October.
“We should anticipate further declines in employment and softness in most components of demand for goods and services,” said Gary Stern, head of the Minneapolis Federal Reserve Bank.
A Reuters poll of economists said the world's richest nations are in, or close to, recession.
Germany slashed its forecast for 2009 economic growth to 0.2% from 1.2%.
In Japan, a Reuters poll showed manufacturing business sentiment hit a six-year low this month.
At a meeting in Brussels, European Union leaders vowed action to underpin growth and jobs threatened by the global financial crisis, but ruled out spending their way out of recession with a Europe-wide stimulus package.
French President Nicolas Sarkozy urged Europe to show the same unity in addressing the economic slowdown as it had in taking coordinated action to rescue banks and stabilize the financial system.
Top Swiss banks UBS and Credit Suisse became the latest to say they were receiving emergency funding.
UBS is getting 6 billion Swiss francs ($5.3 billion) from the government in return for a 9.3% stake, while Credit Suisse said it would raise 10 billion francs from investors including Qatar. UBS will also unload $60 billion of toxic assets into a new fund controlled by the central bank.
The Bank of England said it would create two new facilities for banks to access funds from next week, which should remove the stigma attached to using its emergency lending system.
On Wednesday, the European Central Bank said it will allow banks to swap a larger range of their assets for central bank funds and offer more funds across a range of currencies.
Welcoming the moves, London interbank offered rates for dollars, euros and sterling fell across nearly all maturities.
Governments have pledged $3.2 trillion in emergency measures, including taking stakes in banks.
Japan's prime minister, Taro Aso, said Washington may need to push yet more cash into its banks.
The ECB said it would provide up to €5 billion ($6.8 billion) to Hungary to pump up liquidity.
The International Monetary Fund was in talks to find ways to help Ukraine's economy.
South Korea's financial authorities planned an emergency meeting on Friday after stocks and the currency tumbled 10% on Thursday, media reported.
EU leaders said a global financial summit should make early decisions on transparency, global standards of regulation, cross-border supervision and an early warning system.
Sarkozy said a meeting with US President George W. Bush on Saturday would help lay the groundwork for the global summit that Sarkozy said would launch a “refoundation of capitalism.”
But White House spokeswoman Dana Perino said the meeting between Bush, Sarkozy and European Commission President Jose Manuel Barroso was not connected to the global summit. (Reuters)