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Shares have recovered some ground from Thursday’s steep losses, which came after the US Fed said it could scale back its stimulus programme.

The main share indexes in the UK, Germany and France recorded gains of up to 1% in morning trade, but then trimmed gains in the afternoon.

Earlier, Asian stocks had fallen sharply before recovering.

Wall Street also helped halt the rout when the markets opened (13:30 GMT), registering slight gains.

On Thursday, leading US shares had seen their biggest fall of the year so far – with the Dow Jones dropping 2.3%.

China worriesThe Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE).

However, on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show signs of improvement then the central bank could start to slow down its bond purchases as early as this year, and end the programme next year.

The bond-buying programme has been seen as a key factor behind the rise in stock markets in recent months, as the cash proceeds from the bond purchases flood through the economy and keep long-term interest rates low.

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What’s currently worrying global investors isn’t just that the Fed seems poised to stop manufacturing all that almost-free money, it is that this could happen at a time when what’s happening in China may reinforce a global squeeze rather than counteracting it”

image of Robert PestonRobert PestonBusiness editor

Another factor that spooked markets was news of record high borrowing costs in China this week, raising fears of a Chinese credit crunch and a stalling of the world’s growth engine.

Markets remained under pressure on Friday, but some analysts said the falls seen the previous day had been an overreaction.

Neil Marsh, strategist at Newedge, said: “We’ve had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish.”

Commodities also recovered slightly from their sharp falls in the previous trading session.

And the gold price halted recent slides, rising to $1,295.25 an ounce, up from $1,292.50. Brent crude oil ticked up 48 cents to $102.63.

Bonds were also largely steady.

‘Force-fed steroids’The excess liquidity in the US has meant a lot of funds have been flowing into emerging markets, especially in Asia.

“Asia has benefited from US capital inflows, partly in relation to QE,” said Mitul Kotecha, from Credit Agricole CIB.

“It has been force-fed with steroids, and now that the steroids are going to be pulled back what will happen is a period of transitional volatility that can continue through summer.”

The dollar slipped back a little on Friday from its recent two-week highs against a basket of currencies but remains high.

The sharp drop in the value of the yen against the dollar over the past couple of days boosted Japan’s stock market, with the Nikkei ending up 1.7% higher.

A weak yen is good news for Japanese exporters as it makes their goods cheaper overseas and boosts profits that are repatriated back home.

Elsewhere in Asia, South Korea’s main index dropped 1.5%, Australia’s lost 0.4%, while Hong Kong and Shanghai indexes pared earlier losses to end the day down 0.5% and 0.2% respectively.