(CBS/AP) European stock markets enjoyed their second straight day of solid gains Tuesday following a record rise in Japan, after Wall Street rallied from its worst week ever on optimism about government attempts to shore up the world's battered financial system.

Though markets welcomed the U.S. government's plan to pump $250 billion into banks, pushing the Dow Jones index on Wall Street up 400 points after the open, investors decided to lock in some profits following Monday's sharp rises.

"This is a natural market in play after such a momentous rise yesterday," said Howard Wheeldon, senior strategist at BGC Partners.

Wall Street closed 11 percent higher Monday, its biggest daily jump since 1933, but the Dow Jones Industrial average shifted between modest losses and gains Tuesday as profit-taking started creeping into the market.

The Dow Jones index of leading U.S. shares was 56.39 points, or 0.60 percent, higher at 9,444.00, having opened nearly 400 points higher. At one stage, the selling pressure pushed the Dow into the red.

In London, the FTSE 100 index of leading shares closed up 137.31 points, or 3.2 percent, at 4,394.21 despite news that inflation in Britain is running at a 16-year high. Germany's DAX was up 136.74, or 2.7 percent, at 5,199.19 even though a group of leading German economic think tanks said Tuesday that Europe's largest economy is on the "brink of a recession."

The CAC-40 in France was 97.02 points, or 2.8 percent, stronger at 3,628.52.

The gains on Europe's markets came in the wake of the strongest ever daily performance on Japan's benchmark Nikkei 225 index, which surged 1,171.14 points, or 14.15 percent, to close at 9,447.57. Tokyo financial markets were playing catch-up to recent developments because they were closed Monday for a holiday.


A Cash Infusion

The resurgence in the markets followed the announcement Monday by European government of €1.7 trillion set of national packages to save ailing banks, and the confirmation that the U.S. will follow suit and buy stakes in nine U.S. financial institutions.

The U.S. became the latest to announce plans to buy stakes in its banks.

President George W. Bush unveiled the $250 billion plan to buy stakes in nine banks and argued that the drastic steps would help stability return to the U.S. banking sector. "This is an essential short-term measure to ensure the viability of America's banking system," Mr. Bush said.

"The expectation of further announcements regarding cash injections into banks from the U.S. combined with the fact that certainly at the end of last week's session equities were simply looking grossly oversold does seem to suggest that the current rally does have some chance of being sustainable," said Matt Buckland, a dealer at CMC Markets in London.

Credit for the emergency bank share purchasing plans around the globe has gone largely to British Prime Minister Gordon Brown, whose government moved first to invest tax-payer money in big-name private banks.

CBS News correspondent Mark Phillips reported that, just during last week, Brown went from being the man without a plan to the man whose plan everybody is now following.

"The fact that Europe may well adopt the Gordon Brown plan for semi-nationalization of banks and that Henry Paulson may do the same, certainly stabilized markets this morning," British market analyst and journalist David Buik said Monday.

No one has ever accused Brown, seen at left, of unnecessary charisma, said Phillips, but his dour Scottish, no-nonsense manner - and a lot of money - has produced the first break in the cloud of doom that has enveloped London's financial center and others around the world.

For an investment of $63 billion, British taxpayers now have interests - in one case a majority interest - in three of the country's largest banks, reported Phillips.

The long-term key is whether the flurry of activity can actually break the logjam in credit markets. Despite the coordinated interest rate reductions announced last Wednesday, and massive liquidity boosts, the rates at which banks lend remain high, despite some easing in rates and spreads Monday. That means banks are afraid to lend to each other, and raises the chance that they and other businesses won't get the credit they need to operate.

Market participants will be keeping a close eye on money market rates later when they are fixed. On Monday, the London interbank offered rate, or Libor, for three-month dollar loans fell 0.07 percent to 4.75 percent, while the similar rate in euros, or Euribor, dipped only 0.063 to 5.318 percent.

There was one extreme exception to the recovery trend Tuesday: Iceland.

The small country boasted one of the most glowing credit ratings on the planet just more than two weeks. But as the flaws in the global credit system became apparent, it also became apparent to investors that Iceland's credit line was far bigger than the nation's economy.

Speaking to CBS News correspondent Sheila MacVicar by phone Tuesday, Andres Magnussen, CEO of Iceland's Federation of Trade and Services, lamented: "We were the fifth richest nation in the world. In two weeks, the savings of a generation have been wiped out. The credibility of an entire nation has been wiped out."

Magnussen, whose organization represents many of Iceland's retail, transport, and telecommunications companies, told CBS News that the country's main stock index was trading Tuesday at just 714 points. It was the first day of trading since the market was shut down on Wednesday last week, when it closed at 3004 points.

"There is no currency in the country. Importers cannot pay bills and have had lines of credit cut. Exporters are not bringing foreign currency into the country," said Magnussen.

But in Asia, it was full steam ahead earlier steps by governments to fortify their own financial systems helped stock markets across the region to rally. Authorities relaxed regulations on companies buying up their own shares, a change that will help prevent takeovers and allow companies to prevent a nose-dive in their own issues.

Japan also promised to continue to protect people's insurance policies and savings accounts, and said it will consider capital injection into medium-size and small Japanese financial institutions.

And in Australia, the government announced a plan to inject 10.4 billion Australian dollars ($7.4 billion) to strengthen the country's economy, helping send the S&P/ASX200 index 3.7 percent higher. Hong Kong promised to guarantee all bank deposits until 2010.

Hong Kong's key index ended up 3.2 percent, while South Korea's market jumped over 6 percent. The Philippine market surged more than 7 percent and Indonesia's market - shut half of last week due to dramatic declines - was up more than 6 percent.

"The governments are ensuring that no matter what happens they're not going to allow another major institution to fail," said Singapore-based investment analyst Nicole Sze of Bank Julius Baer & Co., which manages about $300 billion in assets.

"What's happened in the last 48 hours is an extremely positive development. ... You're seeing a reversal of the panic selling, and we think a temporary bottom has been found."

Only China's market fell - sliding 2.7 percent. In Japan, megabank Mitsubishi UFJ Financial Group Inc. added more than 14 percent after completing a $9 billion deal for a 21 percent stake in U.S. investment bank Morgan Stanley.

Russia's stock markets joined the surge Tuesday, prompting regulators to suspend trading on one of the two major exchanges. The MICEX, where most of Russia's trading takes place, climbed 11.2 percent before trading was halted for an hour. The RTS climbed 6.4 percent.

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