In early Europe the yen suffered growing bearish sentiment over the slow pace of financial reform legislation in Japan. Optimism about a likely victory for German chancellor Helmut Kohl in this weekend's elections and frustration with Japan's foot-dragging over key banking reforms also buoyed the mark against the yen.

In Frankfurt, German shares were more than two per cent into positive territory, though off their 2.6 percent peak, boosted by the Dow cutting its losses overnight and a higher close for stocks in Hong Kong, and also by investors moving in after an options expiry. Blue chips Mannesmann and SAP and banks Deutsche and Dresdner were among the gainers.

London's blue chip FTSE 100 index trimmed gains along with other key European markets amid the general nervousness ahead of Greenspan's address to Senate. UK dealers said activity was subdued and water stocks were weak after government calls for price cuts and an 8.5 billion pound ($ 14.5 billion) investment in improving water quality.

Oil stocks were among gainers as four influential OPEC states and independent producer Oman started talks in Kuwait designed to focus plans for supporting prices. In a separate development, leaders of around 20 of the world's biggest oil companies will meet in Venice on October 3-4 to discuss how to cope with oil prices which earlier this year plunged to 10-year lows. The meeting, organised by Washington-based Petroleum FinanceCompany (PFC), will bring together the most powerful figures in the oil business at a time of unprecedented pressure on profits and costs.

On the Paris bourse the main CAC-40 index, which was more than two per cent higher early on, fell back to hover around half a per cent up by late morning as losses on utilities weighed on the market. Suez Lyonnais des Eaux was down 7.55 per cent and Vivendi was down 8.94 per cent. Traders said stocks were pressured by comment that the British government wants water companies to implement price cuts and environmental improvements. In New York overnight the Dow closed down around 0.45 per cent but well off its lows earlier in the session. Hong Kong stocks enjoyed a robust rally, led by activity in the futures market where some brokers suspected the government may have been active ahead of the expiry of September index futures next week. The Hang Seng Index closed up 1.78 per cent.

Asian trade, however, was light due to the closure of Tokyo markets on Wednesday for anational holiday. One star among European bourses was Madrid, where the leading share Ibex-35 index added more than three per cent after the National Statistics Institute reported the Spanish economy expanded 3.9 per cent year-on-year in the second quarter of 1998, its strongest showing in eight years. However, a Madrid trader warned: "You cannot really say the bourse is now bouncing back. Volume is low, trade fragmented and it's more day-to-day trading than final investors' demand."

Wall Street closes lower on profit worries

Blue-chip stocks swung widely and closed lower on Tuesday as anxiety about third-quarter earnings mounted, but broad-market indexes held their own. The Dow Jones Industrial dropped 36.05 points or by 0.4 per cent at 7,897.20. The blue-chip index rose 53 points in early trading, retreated to minus 77 points, rallied a second time and then dropped back again.

Investors turned their focus away from problems in the White House to problems in Asia and Russia, and how they willaffect the earnings of US-based multinational companies.

``We quickly came back to reality, which is earnings,'' said Barry Hyman, senior market analyst at Ehrenkrantz King Nussbaum. ``There's a fear that third-quarter earnings are really going to look pretty poor.''

Hyman was echoing First Call Corp, which tracks earnings estimates and expects third-quarter earnings at companies in the Standard and Poor's 500 index to be 0.4 per cent below those of the third quarter last year.

The last time earnings decline year-over-year was the fourth quarter of 1991, when they fell nearly 18 per cent, said Tom O'Keefe, research associate analyst at First Call.

Despite the gloomy earnings outlook, the broad market firmed. Advancers maintained a solid lead on decliners all day. Trading was thin on the second day of the jewish new year, with around 600 million shares changing hands, up a bit from Monday's light pace.