Traders are in a nervous mood

European markets were down by 1-2% in early trading, following Thursday's 1.6% drop in New York's Dow Jones index.

But markets recovered some ground in afternoon trading to be only modestly lower on the day.

Madrid's Ibex 35 was the worst hit, losing 1.5%, while travel and tourism firms saw their shares continue to dip.

Tokyo's main Nikkei stock index closed down 1.2%. Shares prices fell in Hong Kong, Sydney, Singapore and Seoul.

Trigger

The multiple bomb attacks have so far claimed almost 200 lives and injured 1,200.

According to Roger Hornett, chief executive of brokerage Theodoor Gilissen, it is less about who did the bombing and more about when and where it might happen next.

"The market's simple interpretation was that if it can happen in Madrid, it can happen again in New York or for that matter in London too," he said.

"It has brought home, rightly or wrongly, the fact that international terrorism continues to be a threat at the start of the 21st century."

The initial trigger for Europe's falls had come on Wednesday, when New York shares fell after figures showed the US trade deficit at an all-time high.

On Thursday, there was encouraging news on US retail sales and employment but it was not enough to lift investors' mood.

"Markets were suffering from a bout of poor sentiment and nervousness about what is going on with the macro economic picture. This [attack] has clearly added another uncertainty," said Nigel Cobby, managing director of European equities at JP Morgan bank.

"Having said that, one has to recognise that even September 11 showed that once the mourning is over, the world has to go on and the fundamentals of the world economy and stock market levels become more important [for investors]."