LONDON: European stocks rebounded slightly on Tuesday but nerves were on edge as the eurozone debt crisis continued to sap confidence and after a key committee failed to agree on cutting the huge US budget deficit.
European leaders were meanwhile meeting in Brussels to try and resolve the relentless debt crisis now threatening big nations such as France.
In late morning deals, Frankfurt's DAX 30 added 1.02 percent, the Paris CAC 40 rose 0.86 percent and London's FTSE 100 was up 0.69 percent, boosted by bargain-hunting after recent heavy falls. Madrid added 0.11 percent.
The European single currency advanced to $1.3537 from $1.3494 late in New York on Monday.
"Any bounce today will be short-lived," predicted Daiwa economist Chris Scicluna.
"We still have a policy vacuum in the euro area. Meanwhile, the euro area economy is rapidly going into reverse and the incentives for Italian, Spanish and even French bondholders to maintain their exposures will diminish further.
"So today we are only seeing a temporary breather, due to short-covering, not a turning point," said Scicluna.
Investors also digested short-term Spanish debt auctions, which resulted in a sharp rise in interest paid by Spain to borrow. It was the first bond issue since conservative leader Mariano Rajoy clinched an election victory on Sunday.
"It's a sea of green in stock markets today; however the macro situation remains as bad as ever," said research director Kathleen Brooks at trading site Forex.com.
"Europe is still wrangling over the role of the European Central Bank to sort out this crisis, Spain is still nationalising banks and Austria has also ordered its banking sector to curb loans to Eastern Europe after Hungary applied for financial assistance from the IMF and EU yesterday."
The Bank of Spain nationalised Banco de Valencia on Monday, highlighting ongoing problems in the Spanish banking sector.
Asian markets traded mixed on Tuesday after a US committee charged with finding a deal to cut the nation's huge deficit said it had failed, while worries over France also depressed sentiment.
Tokyo fell 0.40 percent, Sydney dropped 0.72 percent and Shanghai slipped 0.10 percent but Hong Kong rose 0.14 percent.
In Washington on Monday, the 12-member bipartisan "supercommittee" said it was unable to meet its mission of cutting the US deficit by $1.2 trillion over 10 years.
Many had expected the panel -- set up in August as part of a last-minute deal to raise the debt ceiling and avoid a devastating default -- to fail due to political feuds over tax hikes on the rich and cuts to social spending.
While investors continue to fret about dangerously borrowing costs for Spain and Italy, Moody's ratings agency added to the sense of fear by issuing a warning about France's top 'AAA' rating on Monday.
European markets tumbled and the euro slumped after Moody's warned that an increase in French government borrowing costs, slowing growth and the eurozone crisis threatened the country's top credit rating.
France pays almost twice as much to borrow on the bond markets as Germany, it pointed out, despite the government slashing spending and tightening up on tax revenues in an effort to stabilise its strained public finances.
However, Moody's said France's rating was safe for the moment.
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