Share prices in Europe have steadied, but mounting hopes of an end to two months of sharp declines may be overturned by a late sell-off in New York.

New York's technology-heavy Nasdaq share index ended down 2.87% at 1,357 points after a nervous day.

The market is way beyond rhetoric and needs to see concrete hard evidence that earnings are improving

New York broker

New York's broader Dow Jones index slid 1.6% in late trade to close at 8,404 points, while the Standard & Poor's 500 index closed below 900 for the first time in nearly five years, down 2.7% at 881 points.

Some of the biggest names in US business have reported financial results this week: analysts said the picture of the economy that has emerged has been uninspiring.

'No hard evidence of turnaround'

"The lack of any positive news is derailing any sort of market gains," said Michael Palazzi of brokerage SG Cowen.

"The market is way beyond rhetoric and needs to see concrete hard evidence that earnings are improving," he said.

In London, the FTSE 100 index of leading shares closed 2.5% higher, at 4,297 points.

There is a real concerted effort now to stabilise the markets

Tom Hougaard, City trader

Shares in Paris and Frankfurt closed higher, while Japan's main share index closed up 2%.

"There is a real concerted effort now to stabilise the markets," said Tom Hougaard, a trader at City Index.

Sir Howard Davies, chairman of the UK's Financial Services Authority, admitted that the markets were still delicate, but said he was optimistic of recovery.

"In the UK there are more opportunities for an upturn than in the US," Sir Howard told BBC Radio 4's Today programme, adding that US factors had been at the root of the troubles.

Results roster

Investor sentiment could get a boost on Friday by the strong profits and sales peformance reported by mammoth software firm Microsoft.

But IT analysts reckon demand in the software sector remains weak. Microsoft's performance owed much to its discounting strategy, they said.

The markets' months of misery

New York Dow: Down 17.5% from 17 May peak London FTSE: Down 20.5% from 15 May peak Frankfurt Dax: Down 19.3% from 15 May peak Paris Cac: Down 23.1% from 15 May peak Tokyo Nikkei: Down 13.2% from 20 May peak Data to close of trading, 17 July

Although US corporate data released in the latest results season has been mixed so far, analysts have taken comfort from growing attention on company fundamentals, rather than the gloomy investment sentiment which has overhung markets in recent weeks.

Could things be starting to look up?

But analysts have warned investors not to read too much into the rebound.

"Until people get their courage back, until corporate America cleans up its act or earnings get better, this looks like a technical bounce, and technical bounces have not had any legs in the past," said James Volk of DA Davidson.

Two months of misery

Major stock markets around the world have now lost up to one-quarter of their value since the recent peak in mid-May.

Until corporate America cleans up its act or earnings get better, this looks like a technical bounce

James Volk, DA Davidson

Many have plumbed depths well below those hit after 11 September: the FTSE 100 index, for example, has hit lows not seen since the end of 1996.

After 11 September, all major markets plunged, but recovered sharply towards the end of the year before treading water in the first quarter of 2001.

The recent sharp declines - sparked by the admission that telecom giant WorldCom had exaggerated its profits - have caused consternation among policymakers and consumers.

Falling share prices generally lead consumers to cut spending, especially in the US, and could push the global economy back towards the recession it flirted with late last year.