Global stock markets partially rebounded this morning from losses suffered yesterday, as investors bet the sell-off was overblown.

Japan’s Nikkei 225 was up more than 10 per cent by 9.30am UK time, having shed 12.5 per cent in the previous session as the unwinding of the so-called yen carry trade wreaked havoc on the index.

The FTSE 100 and FTSE 250 gained at the open before slipping back to remain flat, after UK stock markets fell more than 2 per cent on Monday, while European stock indices also clawed back some ground.

Japan’s stock market suffered its biggest one-day fall in more than 30 years on Monday as fears of a looming US recession combined with the ongoing unwinding of the yen carry trade after the Bank of Japan hiked interest rates last week.

Popular among investors for around two decades, the carry trade is a strategy whereby traders profited from the difference between Japanese and other global interest rates.

But head of markets at Interactive Investor, Richard Hunter, said the unwinding may have ‘had less of an impact than first thought’, noting that ‘little has actually changed’ for the Japanese economy and its prospects.

Markets continued to fall in the US, after recession fears and the lack of a Fed rate cut spooked investors. The tech-heavy Nasdaq closed 3.4 per cent lower, while the Dow and S&P 500 were off 2.6 and 3 per cent, respectively.

It followed weaker-than-expected employment data, which sparked fears the Federal Reserve has been too slow to cut interest rates and the world's biggest economy is now facing down a looming recession.

But separate data later in the day on Monday showed the US services sector rebounded from four-year lows in July, thereby limiting market losses.

Fed policymakers also issued commentary in an attempt to sooth market skittishness.

While there are now calls for an emergency US rate cut, current market pricing suggests the Fed will wait until its September meeting before pulling the trigger on easing monetary policy.

Kallum Pickering, chief economist at Peel Hunt, said central bank policy errors have been ‘the key downside macro risk’ to major economies this year.

He added: ‘Although we continue to expect a soft-landing in the US, we have downgraded our real GDP calls near-term and raised our expectations for the scale and pace of upcoming cuts by the Fed.

‘Some reliable US recession signals, including the yield curve inversion, have been flashing red for months.

‘However, US economic activity so far has remained ultra-strong.

‘A major reason for the US strength and the upside surprises is that domestic activity has benefited from a huge fiscal stimulus.

‘As this support is likely to continue well into the future, it can help to contain downside risks as US economic activity softens near-term.’