U.S. Treasury Secretary Henry Paulson tried to quell concerns about markets, saying in Tokyo that the global economy is as strong as he's ever seen and that reforms in China would help lessen market volatility.

"It may at last be time for the bargain hunters to come into play and start buying up some rather attractively priced stock," said Matt Buckland, a trader at CMC Markets in London.

Britain's benchmark FTSE-100 gained 1 percent, with mining companies leading the way. France's CAC-40 climbed 0.8 percent, while Germany's DAX Index added 0.8 percent.

In the U.S., stocks rebounded as investors were encouraged by the recovery in world markets, but gave up some ground as morning trading progressed.

"The recent shocks from Asia will pass, and U.S. stocks will regain lost ground and finish up in 2007," said Peter Morici, a professor at the University of Maryland School of Business. "Overall, steady interest rates, productivity gains and new products, and profits from overseas operations should help the stock market recover lost ground and will give new legs to the bull market."

In Asia, investors flocked back to the market, scooping up shares after days of losses and renewed confidence that underlying economic fundamentals are basically stable.

The Tokyo Stock Exchange, the region's biggest bourse, led the turnaround with its benchmark Nikkei 225 index climbing 202.25 points, or 1.22 percent, to finish at 16,882.92 points. That snapped five straight days of losses that had seen the index plunge more than 8 percent.

Hong Kong's Hang Seng index bounced back 2.11 percent, while Sydney's S&P/ASX 200 closed 2.06 percent higher. South Korean stocks rose 2 percent while key indexes in Malaysia and Singapore both added 1.8 percent.

The Shanghai Composite index, the epicenter of last week's market meltdown, rose 1.97 percent to close at 2,840.18.

Paulson tried to bolster confidence by saying the U.S. and global economy are strong and that stock market volatility is inevitable.

"The global economy is more than sound. It's as strong as I've seen in my business lifetime," Paulson said after meeting Japanese officials in Tokyo.

"Markets very seldom move in a straight line," said Paulson, who was scheduled to later head to South Korea and then China. "You are always going to have volatility."

Many analysts had seen the selloff as a healthy correction for markets that had risen too far, too fast.

Malaysian Prime Minister Abdullah Ahmad Badawi said the recent plunge in prices reflected global uncertainty, and was not an indication of a weakening local economy.

Investor sentiment was also lifted by a recovery in the dollar today from a three-month low Monday. The dollar bought 116.40 yen — up from the mid-115 yen level Monday but down from above 120 yen last week.

Recent market turmoil has prompted some investors to unwind so-called yen-carry trades, which involves borrowing money at Japan's ultra-low interest rates to invest in higher-yielding assets elsewhere. A decline in this practice could hurt global liquidity.