Asia falls, Europe shrugs on Dow plunge

European stocks shrugged off sharp drops in Asian markets Wednesday after a tumble on Wall Street fanned investor fears that a U.S. recession would sap demand for Asian exports.

U.S. futures rose ahead of the start of trading in New York.

In Europe, stocks were up modestly. In the U.K., the benchmark FTSE 100 Index rose 0.1 percent to 5,873.5, while Germany's DAX climbed 0.3 percent to 6,782.91. France's CAC gained 0.5 percent to 4,799.2, helped by a strong earnings report by France Telecom.

In Asia investors dumped shares after figures released Tuesday showed the U.S. service sector shrank last month for the first time since March 2003. That wiped out some renewed confidence about the American economy after the U.S. Federal Reserve's two big rate cuts late last month.

"It's unbridled pessimism," Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong said of the Asian markets.

In Hong Kong, the benchmark Hang Seng index plunged 1,339.24 points, or 5.4 percent, to close the half-day session at 23,469.46. Japan's Nikkei 225 tumbled 4.7 percent to 13,099.24.

Global financial markets have been turbulent since the start of the year on worries about a U.S. — and worldwide — slowdown and massive losses racked up by banks that made bad bets on securities backed by risky mortgages.

While the Fed's rate cuts lifted many markets last week, investor confidence evaporated after the Institute for Supply Management reported that its December index of activity in the U.S. service sector, which accounts for about two-thirds of the economy there, dropped below 50, indicating contraction. The Dow Jones industrial average plunged 2.93 percent, its largest one-day percentage drop since Feb. 27, 2007.

Early Wednesday, Standard & Poor's 500 futures rose 4.1 points to 1,347.30 and Nasdaq 100 futures added 2.5 points to 1,787.50, while Dow industrial futures added 29 points.

The financial industry, already reeling from losses linked to the credit crisis, was dealt another blow last month when major French bank Societe Generale said it had lost 4.8 billion euros ($7.1 billion) in cleaning up unauthorized transactions by a rogue trader.

Elsewhere in the Asia-Pacific, Australia's key index fell 3.2 percent, while India's Sensex dropped nearly 3 percent. Thailand's market slid 1.6 percent.

Some traders said Wednesday's decline in Hong Kong was overdone and largely driven by investors keen to avoid risky exposure during the long Lunar New Year holidays. Markets in Hong Kong and Singapore were closed Wednesday afternoon and would remain shut Thursday and Friday.

Markets in China, South Korea and Taiwan were closed Wednesday through Friday for the Lunar New Year holidays.

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Malcolm Foster in Bangkok also contributed to this report.