There has been another day of nervousness on Wall Street, as fears over corporate scandals and poor profits caused US share prices to plunge to levels last seen after the 11 September attacks.

The negative mentality is as pervasive as I have ever seen it

Tony Cecin, US Bancorp Piper Jaffray

At one point, the Dow Jones dropped more than 400 points, nearly 5%, before rebounding to close 0.5% down.

But observers warned that the rally was simply a matter of buyers picking up stocks on the cheap, and that the negative mood remained intact.

A speech by President George W Bush, who said that the American economy remained fundamentally strong, did not ease the gloom.

The recovery on Wall Street came too late to save markets in Europe, which again notched up big losses.

Recession fears

The BBC's North America business correspondent, Stephen Evans, says it is a now an out-and-out bear market. Investors think prices will fall, so they sell and cause the very price falls they fear.

Day of volatility

Dow Jones closed 0.5% lower Shares plunged almost 5% during the day S&P 500 index closed 0.4% down Nasdaq Composite up 0.6% FTSE down 5.4%

Tony Cecin, director of institutional trading at US Bancorp Piper Jaffray in Minneapolis said: "The negative mentality is as pervasive as I have ever seen it, and I went through the 1973 and 1974 bear markets."

And private investors were in no doubt that things were going to get worse.

Negative mood is pervasive, observers say

"I've been selling a lot this year," Roger Hing, a 70-year old retired electronics engineer from California, told the Associated Press.

"The investing public is very concerned, at least I am, about what is happening with bookkeeping. Corporate officers are taking advantage of us little people."

There are also fears that falling stock prices, because they generally lead consumers to cut spending, could push the economy back into recession.

Bottoming out

When the closing bell rang on the New York Stock Exchange at 2000 GMT, the blue-chip Dow Jones industrial average was just 45.34 points lower at 8,639.19.

The closing level represented a massive turnaround from the picture shortly after lunch, when the panic forced the Dow to its low for the day of 8,245.01, a fall of 439.52 points or more than 5%.

That took the Dow almost down to the 8,235.81 recorded on 21 September 2001, a level last reached during the six-month dip in the latter half of 1998.

Similarly, the broader S&P 500 index finished just 3.52 points or 0.4% lower at 917.87, having bottomed out on a 4.88% decline.

And the technology-heavy Nasdaq Composite even managed a narrow gain on the day, coming back from a maximum 4.2% fall to finish up 8.7 points or 0.6% at 1,382.2.

Earlier, in London, the benchmark FTSE 100 index had closed at 3,994.5, having fallen 229.6 points or 5.4%.

And French and German markets had likewise delivered a dismal performance, each closing down about 5%.