European markets remained in the red on Tuesday, as trading came to a close with the main benchmark indices all down around 2.5 percent following Wall Street's Monday rout.

At close of trade, Germany's DAX index was down 2.3 percent to 12,392.66 points, while France and the UK closed 2.4 and 2.6 percent lower, respectively.

Read more: Opinion: Markets plunging — keep calm and carry on

The Dow Jones industrial average fell as much as 567 points after the opening bell, then jumped as much as 367 points in the first half hour of trading.

Read more: Why stock markets crash

The prospect of a higher-than-expected rise in US interest rates this year has spooked investors on the ground. Rising wages in the US, coupled with the prospect of inflation, may force the US Federal Reserve to tighten the money supply and increase borrowing costs. 

However, Europe appeared to have avoided the worst of the share falls seen on Monday in the US and earlier on Tuesday in Asia. According to Unicredit strategists, the greater weight placed by European markets on industrial stocks and financials should see Europe better suited to weather the current financial storm.

In the US, however, the recent surge in equities has largely been thanks to volatile technology stocks, the kind of risky assets investors are now looking to dump.

Nikkei shares suffer biggest one-day points-drop since 1990

Japan's Nikkei 225 Stock Average plunged by more than 7 percent in early trading on Tuesday, suffering its biggest one-day points drop since 1990.

The Nikkei lost 1,589.17 points by Tuesday afternoon, before recovering slightly. The index closed at just above 21,500 points, down 5 percent.

Read more: Dow Jones industrials plummets with largest drop since 2011

Elsewhere, Hong Kong's Hang Seng index sank 3.9 percent, while Australian shares shed four months of gains in Tuesday's early trading.

All other regional markets were also lower. 

In the US, about 25 minutes into trading, the Dow Jones Industrial Average had recovered to 24,551.76, up 0.9 percent. The broad-based S&P 500 gained 0.7 percent to 2,668.43, while the tech-rich Nasdaq Composite Index climbed 0.7 percent to 7,017.87.

Lawmakers unnerved

Top Japanese officials moved to downplay concerns on the trading floor on Tuesday. Finance Minister Taro Aso declined to comment on share prices, but insisted that corporate performances were not getting worse.

Economy Minister Toshimitsu Motegi said he was keeping a close eye on market movements, adding that Japan's economy remained stable and improving.

The Reserve Bank of Australia, the country's central bank, said it would leave cash rates (the interest rate that banks pay to borrow) unchanged at 1.5 percent, citing household consumption as a "continuous source of uncertainty."

dm, law/msh (Reuters, AP)