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European stocks bounce higher

Europe's main stock markets staged a modest recovery on Tuesday as investors went bargain hunting for shares that had slumped sharply the previous day on political uncertainty in Italy and Spain, dealers said.

Gains were tempered however by news that the US government plans to sue Standard & Poor's over its rating of mortgage bonds at the heart of the 2008 financial crisis. The agency has denied any wrongdoing.

The European single currency traded at $1.3515, essentially unchanged from $1.3514 late on Monday with traders essentially shrugging off a call by French President Francois Hollande that markets alone should not be in control of exchange rates.

Gold prices advanced to $1,678 an ounce on the London Bullion Market from $1,666.

In European stock trading, London's FTSE 100 index of top companies was showing an afternoon gain of 0.58 percent to 6,282.85 points. Frankfurt's DAX added 0.30 percent to 7,661.36 points and in Paris the CAC gained 1.09 percent to 3,700.17.

Madrid's IBEX 35 rallied 1.84 percent to trade at 8,065.30 points, while Milan's FTSEMIB jumped 1.19 percent to 16,735.03.

"European stock markets are staging a mild recovery in Tuesday's session following the beat-down in the previous session which fed through to US and Asian share markets overnight," noted Ishaq Siddiqi, an analyst at ETX Capital.

"Traders are picking up some recently battered sectors, particularly banks, however the big question is how long this morning's move to the upside can last."

In New York, US shares also rebounded in opening trade, but those in the computer maker Dell sank 2.6 percent to $13.27 after the company announced a plan to take itself private and de-list from the Nasdaq index.

The Dow Jones Industrial Average added 0.54 percent, while the S&P 500 index gained 0.62 percent and the tech-rich Nasdaq Composite picked up 0.33 percent.

Asian markets had tumbled earlier in the day, bringing a recent rally to a juddering halt owing to sudden political concerns in Spain and Italy.

The euro had surged Friday to a 14-month peak at $1.3711 but it slumped on Monday after Spain's prime minister Mariano Rajoy was forced to deny corruption claims, while a surge in polls by former Italian premier Silvio Berlusconi spooked markets ahead of this month's election.

Rajoy's ruling Popular Party said on Monday it would take legal action against anyone who published or leaked information implicating its executives in a case of alleged corruption that has sparked calls for the prime minister to resign.

Berlusconi meanwhile vowed to throw a spanner in the works of a government austerity drive as his party showed solid gains ahead of the election.

"Political instability in both Spain and Italy are still rattling sentiment on the whole with traders now fearing an impending bailout for Spain if the current government is removed on corruption charges," said Siddiqi.

"Over in Italy, the prospects of anti-German/anti-euro zone Berlusconi making meaningful headway in the upcoming general elections in that country, adds to the political uncertainty."

The eurozone crisis snapped back into focus ahead of a Brussels summit on Thursday and Friday, when leaders will seek to rescue talks on the European Union's trillion-euro budget.

"In January there were whispers that the eurozone crisis was over. In our view the crisis will still be having an impact for many years to come, though we anticipate the tremors will over time decrease in size," said Rabobank currency analyst Jane Foley.

"We would warn that both the political, budgetary and economic difficulties are sufficiently worrisome in Spain and Italy to cause a significant stumbling block for the euro in the coming months," she added.

Neil MacKinnon, analyst at VTB Capital financial group reckoned that "at some stage, Spain and Italy might well require support from the European Central Bank and activation of its bond buying program."

Another factor underpinning market caution was the interest rate decisions due on Thursday by the ECB and the Bank of England.

In earlier Asian deals on Tuesday, Hong Kong shares tumbled 2.27 percent, Tokyo dived 1.90 percent, Seoul slipped 0.77 percent and Sydney shed 0.51 percent.

Shanghai reversed morning losses and ended up 0.20 percent after the Chinese central bank injected a huge amount of cash into the market to satisfy pre-Lunar New Year holiday demand.