World markets pause for breather

World stock markets were mixed today after Wall Street rebounded strongly overnight, with Japanese shares recovering from a historic fall in the previous session.

Tokyo’s Nikkei 225 was up 2.78%. The index was still far from recouping Thursday’s 11.4% loss – its biggest one-day drop since the stock market crash of October 1987.

For the week, the Nikkei gained 5%, much better than the 24% it lost last week.

Compared to the gyrations earlier this week, Asian markets were moderately more stable.

Shanghai’s index rose for the first time in a week. But Hong Kong’s Hang Seng index dropped over 4%, its lowest level in almost three years as selling accelerated late in the day after banks said they would help investors in Lehman Brothers-backed bonds recouped some of their money. Australia, Singapore and South Korea also closed lower.

European stocks fared better in early trading as Britain, German and French indices gained more than 2%. Russian stocks lost ground.

Today’s mixed session ended an extremely volatile week that began with a two-day rally. Then yesterday global stock markets plunged as weaker-than-expected US retail sales data and a downbeat assessment from the US Federal Reserve showed the world’s largest economy, so critical to Asia’s export countries, was heading into a recession.

Overnight in New York, a late wave of buying lifted the Dow Jones industrials 4.7% in a yet another volatile session that saw the benchmark swing more than 800 points.

The Dow remains up 528 points, or 6.3 %, for the week.

Governments across Asia remained focused on the financial crisis. Late yesterday Malaysia said it would guarantee all bank deposits for the next two years, following similar moves by Hong Kong and Singapore amid fears about the health of banks.

In Australia, Prime Minister Kevin Rudd gave a reassurances that the country would pull through the crisis “in good shape. He said he would soon present a proposal in response to the crisis that would include a review of executive pay at financial institutions.

With crisis and recession talk still weighing heavily, Japanese investors bought targeted sectors such as utilities and telecommunications, whose earnings are considered somewhat insulated from global downturns.

In Hong Hong, banks were hit with a late-day bout of selling after the territory’s banking association agreed to help repay investors in Lehman-backed bonds whose values have been in doubt since the Wall Street firm collapsed last month.

Mainland Chinese shares rebounded helped by a surge in brokerages amid reports they soon may be allowed to test-trial margin trading.