Asian stocks rallied and European shares mounted a cautious comeback Tuesday as markets reversed a weeklong sell-off, fanning hopes that recent global trading turmoil may finally subside.

U.S. Treasury Secretary Henry Paulson, in Tokyo for a three-nation Asian tour, tried to quell concerns about markets saying the global economy is as strong as he's ever seen and that reforms in China would help lessen market volatility.

Investors across Asia flocked back to the market, scooping up shares after days of losses and renewed confidence that underlying economic fundamentals are basically stable.

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The Tokyo Stock Exchange, the region's biggest bourse, led the turnaround with its benchmark Nikkei 225 index climbing 202.25 points, or 1.22 percent, to finish at 16,882.92 points. That snapped five straight days of losses that had seen the index plunge more than 8 percent.

Hong Kong's Hang Seng index bounced back 2.11 percent, while Sydney's S&P/ASX 200 closed 2.06 percent higher. South Korean stocks rose 2 percent while key indexes in Malaysia and Singapore both added 1.8 percent.

The Shanghai Composite index, the epicenter of last week's market meltdown, rose 1.97 percent to close at 2,840.18.

Catching the wave, shares opened cautiously higher in Europe, with Britain's benchmark FTSE 100 gaining 0.4 percent to 6.080.5. France's CAC 40 climbed 0.7 percent, while Germany's DAX Index added 0.4 percent.

In Tokyo, Paulson tried to bolster confidence by saying the U.S. and global economy are strong and that stock market volatility is inevitable.

"The global economy is more than sound. It's as strong as I've seen in my business lifetime," he said after meeting Japanese officials in Tokyo.

"Markets very seldom move in a straight line," said Paulson, who arrived in Seoul, South Korea, later Tuesday, before heading to China later in the week. "You are always going to have volatility."

Many analysts had seen the sell-off as a healthy correction for markets that had risen too far, too fast. China's market had doubled in value last year, and Malaysian stocks had surged 17 percent this year until last week's plunge.

Malaysian Prime MinisterAbdullah Ahmad Badawi said the recent plunge in prices reflected global uncertainty, and was not an indication of a weakening local economy.

Investor sentiment was also lifted by a recovery in the dollar Tuesday from a three-month low Monday. The dollar bought 116.40 yen — up from the mid-115 yen level Monday but down from above 120 yen last week.

Recent market turmoil has prompted some investors to unwind so-called yen-carry trades, which involves borrowing money at Japan's ultra-low interest rates to invest in higher-yielding assets elsewhere. A decline in this practice could hurt global liquidity.

Still, while the Bank of Japan raised interest rates last month to 0.5 percent, they are still far lower than rates in the U.S. or Europe, making the yen-carry trade still an attractive strategy, analysts said.

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