The Swiss stock market has bounced backed from an early low on Tuesday after the US Federal Reserve cut key interest rates by three-quarters of a percentage point.

The index of Swiss blue chips (SMI) lost 4.5 per cent in the first minutes of trading and fell below the psychologically important 7,000-mark on fears of a US recession, but ended the day up 2.76 per cent at 7,487.92.

Among the biggest winners of the day were Switzerland's largest bank UBS and chemicals maker Clariant, whose stock prices jumped over nine per cent and seven per cent respectively.

Shares in Swiss Re also rose by more than seven per cent, a day after the world's biggest re-insurer saw some ten per cent wiped off the value of its stock.

The broader Swiss Performance Index (SPI) index closed up 2.64 per cent at 6,074.62 points.

In New York the Dow Jones industrial average was down about 132 points or 1.13 per cent, while the S&P 500 fell 17 points or 1.29 per cent. But the market recovered from a much steeper early sell-off that took the Nasdaq down as much as five per cent and shaved 450 points from the Dow.

European markets meanwhile recovered sharply after wide losses starting on Monday when US markets were closed for the Martin Luther King holiday. Britain's FTSE-100 index climbed 2.9 per cent to 5740.10. France's CAC-40 Index added 2.1 per cent to 4842.54 and Germany's DAX Index lost 0.3 per cent to 6769.47.

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