LONDON – European stocks closed higher Tuesday, tracking a U.S. rally that recovered some of the previous day’s sharp losses. Asian markets closed lower earlier in the day.

The FTSE 100 closed 1.4 percent higher at 4,122.86, helped by a 12.5 percent jump in the share price of British Airways PLC, which said it is in merger talks with Australian rival Qantas. Tesco shares soared 13.0 percent after reporting upbeat sales in the third quarter.

The CAC-40 index in France closed 2.4 percent higher at 3,152.90, while Germany’s DAX was the best performing major European index, up 3.1 percent at 4,531.79, as car companies such as Daimler AG and Volkswagen AG recouped most of the previous session’s losses.

European stock markets had showed little direction before the positive open of U.S. markets.

The Dow Jones industrial average was up 2.7 percent at 8,367.08 as investors bought back into equities after the savage retreat on Monday, when the Dow closed down almost 700 points, or 7.7 percent, wiping out more than half of last week’s gains.

Monday’s losses caused Asian markets to slump overnight and close sharply lower. Japan’s Nikkei 225 stock average tumbled 533.53 points, or 6.4 percent, to 7,863.69, and Hong Kong’s Hang Seng index lost 5 percent to 13,405.85.

The recovery in European and U.S. stocks on Tuesday was largely a reaction to Monday’s heavy losses, when a run of bad data increased fears that the length and depth of the global economic downturn will be larger than anticipated.

It all culminated with Monday’s announcement by the National Bureau of Economic Research, considered the arbiter of the U.S. economic cycle, that the world’s largest economy entered a recession in December 2007, much earlier than most predictions.

“If the U.S. economy is entering a depression, it is far too soon, even for an equity market that tries to discount conditions six months or a year ahead, to be looking for economic recovery,” said Stephen Lewis, chief economist at Monument Securities.

The optimism that saw U.S. stocks rise for five straight days last week for the first time since July 2007, has all but evaporated amid renewed worries about the global economy. The data expected out of the U.S. over the rest of the week, culminating in Friday’s closely watched jobs report for November, are expected to make for further grim reading.

Despite the recession which has taken hold across the developed world, some companies are managing to post solid performances. One notable example was British supermarkets chain Tesco PLC, which saw its share price rise Tuesday by over 13 percent after it reported like-for-like sales, excluding revenues from its gas pumps, up 2 percent during the third quarter.

“Yet again Tesco has defied the laws of gravity, kicking market recession fears firmly in the teeth,” said Howard Wheeldon, senior strategist at BGC Partners.

Tesco will be hoping that the widely anticipated 1 percentage point rate reduction Thursday from the Bank of England will help entice shoppers in the crucial Christmas trading period ahead. The European Central Bank is also expected to cut its benchmark rate by at least half a percentage point on Thursday.

Earlier, Australia’s central bank slashed its key interest rate Monday a full percentage point to 4.25 percent in an attempt to prevent the economy from sliding into recession. But investors took scant comfort from the move, sending the benchmark S&P/ASX 200 index down 4.2 percent to 3,528.2.

Benchmarks in the Philippines, Taiwan, India and South Korea also dropped sharply.

Markets on mainland China were mixed, with food processors up following a lifting of price controls but banks down on economic jitters. The benchmark Shanghai Composite Index slipped 0.3 percent, while the Shenzhen Composite Index rose 1.4 percent.

The bleak outlook for the world economy drove oil prices to three-year lows earlier below $48 a barrel. By late afternoon in Europe light, sweet crude for January delivery recovered to trade down only $0.92 to $48.36 a barrel.

The dollar was higher against the Japanese yen at 93.57 yen from 93.36 yen earlier in the European afternoon Tuesday. The euro strengthened to $1.2716 from $1.2695.

The pound, meanwhile, which slumped around 3.5 percent against the dollar Monday after dismal British manufacturing data, was up at $1.4943.

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Associated Press Writers Pan Pylas in London and Tomoko A. Hosaka in Tokyo contributed to this report.