The dollar was slightly firmer but confined to a narrow range in early Europe over market concerns about Japanese bank reform and Latin American economies. The dollar struggled above 132 yen on uncertainty over the possibility that Japan's ruling Liberal Democratic Party could reach an agreement with its parliamentary opposition over banking reform before Prime Minister Keizo Obuchi meets Clinton onSunday.

The roller-coaster nature of the markets was underlined at the opening in Germany where traders at first felt the 5 per cent dive a day earlier had been overdone and sent the electronic Xetra Dax up three per cent in early trade. Those gains were swiftly erased and the Xetra DAX dropped below the key 4,600-level. Dealers said the expiry of stock and index options made for a volatile trading climate. ``People are very nervous and very sensitive to negative news, which is always a bad sign,'' one dealer said. Daimler-Benz AG was down 50 pennigs at 145.50 marks ahead of a shareholders' vote on its planned merger with Chrysler. Chairman Juergen Schrempp said earlier that the new company was not at risk from international financial crises. ``These difficulties do not change our view that the markets in Asia, Latin America, and Central and Eastern Europe are the growth markets of the future,'' Schrempp said. In Paris, the CAC-40 share index fell 1.17 per cent at the opening, extending a dive of 5.47 percent in the previous session. The falls quickly extended beyond two per cent. Traders said sentiment was extremely bearish on Alcatel's shock profit warning on Thursday, the gloomy outlook in Japan and emerging markets and the declining prospects of a US rate cut. London's FTSE 100 index opened weaker, losing 1.8 per cent in early trade a day after its fifth biggest daily points drop in history.

A profits warning from Shell knocked sentiment and analysts prepared earnings downgrades as the oil giant said its second half would be worse than the first six months. Shell shares shed eight per cent, although some analysts said the company's restructuring plans would come to be seen in a positive light. Despite Europe's renewed declines, some gains in S&P futures may bode well for Wall Street after it ended overnight with a loss of 216 points, or 2.67 per cent, on the dashed hopes of co-ordinated interest rate cuts by major economies. The news was slightly better out of Asia. Tokyo shares fell early in thesession but later erased those losses on mounting hopes of domestic bank restructuring and as public pension firms snapped up bargains created by Thursday's selloff.

``The main problem is the market now perceives that there is not going to be any immediate measures to try to resolve what appears to be a deflationary bias in the global economy,'' said Peter Perkins, strategist at Daiwa Research International. Greater stability was forecast in New York due to the recent tendency of US stocks to rebound after a substantial sell-off.

``The jury is out as to whether the US will rebound but I suspect it will show a little bit of stability,'' Perkins said. Hong Kong stocks were off nearly 216 points or three per cent in the afternoon session at 7,360.

Markets were hard hit after US Federal Reserve chairman Alan Greenspan on Wednesday told Congress no co-ordinated rate cuts by the G7 club of rich countries were in the works. He said a US rate cut was possible depending upon domestic conditions. With contagionspreading into Latin America, calls are mounting for a global monetary easing to thwart the winds of deflation sparked by the Asian crisis. ``This is a very serious problem,'' said Sun Bae Kim, economist at Goldman Sachs. ``We need to reflate the world economy, or at least offset the deflationary impact of the asset prices correction, and monetary policy is a very powerful tool,'' he added. There was little good news in Latin America, where Brazil was embroiled in crisis as deflation worsened, stock prices sank and the central bank intervened in the currency market. Shares in Brazil were suspended after they plunged more than 10 percent on Thursday.