Stock markets in the Asia-Pacific region fell sharply Friday in the wake of Thursday's alarming 2.0 percent plunge on Wall Street.

But European exchanges on Friday pared their losses after steep declines of between 2.0 and 3.0 percent the day before.

Markets in London, Paris and Frankfurt ended the week on losses limited to 0.58 percent, 0.55 percent and 0.76 percent respectively.

The sell-off the previous day was triggered by a 6.6 percent fall in sales of new homes in the United States in June, intensifying concern for the health of the key US housing market.

Investors staged a "flight to quality," transferring some of their money from stocks to government bonds, a trend that sparked fears of a possible deterioration in the ability of companies to get credit, notably at a time when interest rates are on the rise in Europe.

Rising oil prices and anxiety over a generalised exacerbation of inflation added to investor unease.

World stock markets had been moving noticeably higher in recent months, continuing an upward course that began five years ago and suggesting that they might now be in for a long-term correction.

The Dow Jones Industrial Average has gained 22 percent in the past year, including an eight percent increase since January.

Exchanges in Asia and Europe have also had a solid four-year run, with both Hong Kong and Frankfurt gaining 13 percent. Weaker advances were recorded in Tokyo, 0.34 percent, London, 0.55 percent, and Paris, 2.5 percent.

But analysts remain optimistic. For Mathilde Lemoine, chief economist at the HSBC bank, the housing and credit crises in the United States are "rather localised" and are not likely to spread throughout the global financial system -- even if they do trigger a downturn in US consumer spending.