(CNN) -- The former head of the U.S. Federal Reserve has said the United States is "in the midst of a credit tsunami," but it will emerge from the crisis with a "far sounder financial system."
Fears of recession continued to cause losses in stock markets worldwide on Friday.
Japan's Nikkei Exchange dove more than 7 percent in early afternoon trading, sinking on news that Sony had cut its profit forecast in half.
South Korea's Seoul Composite and the Taiwan Weighted stocks opened nearly 3 percent down.
U.S. stocks were mixed Thursday, with the Dow rallying back after two days of declines, and the Nasdaq slipping to its lowest point in more than five years.
The U.S. Dow Jones industrial average gained around 172 points to finish at 8,691, erasing a loss of as much as 275 points.
Alan Greenspan, who chaired the reserve from 1987 through 2006, said Thursday that whatever regulatory changes were made to respond to the crisis, "they will pale in comparison to the change already evident in today's markets."
Greenspan, who some analysts say did not do enough to control financial institutions during his two-decade tenure, made his comments in prepared testimony to the House of Representatives Oversight and Reform Committee.
He admitted he made a mistake during his time as chair by presuming that lenders were more capable than regulators of protecting their finances, adding he was "shocked" when the system "broke down."
"I still do not understand exactly how it happened," he said.
He backed the $700 billion Wall Street bailout, approved by Congress, that allows the U.S. government to buy bad mortgage investments from finance firms or buy a stake in troubled companies.
The Standard & Poor's 500 (SPX) index gained 1.3 percent on Thursday. But the Nasdaq composite (COMP) lost 0.7 percent, recovering a little after touching a new bear-market low around 1,533 during the session.
London's FTSE 100 index of leading shares ended the day up 1.16 percent, while Germany's DAX 30 was down 1.12 percent and France's CAC 40 up 0.38 percent. Watch how the markets progress
The economic turmoil will be the focus of the two-day, 43-nation Asia-Europe Meeting, which opens Friday in Beijing, according to European Union President Jose Manuel Barroso, speaking at the EU's Beijing office on Thursday.
Leaders hope this week's summit in China will help bring agreement on a response to the crisis ahead of a November 15 meeting hosted by U.S. President George W. Bush in Washington.
"We need a coordinated global response to reform the global financial system. We are living in unprecedented times and we need unprecedented levels of global coordination," The Associated Press reported Barroso as saying. "It's very simple. We swim together or we sink together."
Barroso outlined no specific proposals but said a solution needed to be based on transparency, responsibility, cross-border supervision and global governance. He also said the world's financial system needed "major reform." Do we really need to rebuild, asks Charles Hodson
The current financial turmoil was sparked by the U.S. housing market collapse and a credit freeze in the United States, and around the globe that is showing signs of affecting economic growth.
Amid the wild swings in both stocks and commodities over the last few weeks, "fundamentals matter very little right now" in the U.S. market, said Ned Riley, chief investment strategist at Riley Asset Management.
He said most of what is happening is being driven by traders with a short-term perspective.
On the upside, lending rates continue to improve, as the efforts of world governments to stabilize financial markets started to kick in. But any relief about the improvement in the credit market has been overshadowed by recession fears.
"Some of these programs are starting to work, but it's going to take a while for borrowing to reach the consumer," he said.
The market declines comes after the Dow Jones industrial average lost 514 points, or 5.7 percent, on Wednesday -- the Dow's seventh worst ever point loss. Watch how Asian markets fall »
"The credit crunch seems to be behind us, and we are shifting focus to corporate earnings and economic conditions, and clearly both are deteriorating," Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong, told The Associated Press.
Main Street bank Wachovia -- which is due to merge with Wells Fargo -- reported a heavier-than-expected third quarter loss of $23.9 billion. Will volatility continue, asks Todd Benjamin
Internet company Yahoo said it would cut its workforce by 10 percent following net income decline of 51 percent, while pharmaceuticals company Merck said it will lose 12 percent of its staff.
Aircraft maker Boeing said its earnings had dropped 33 percent through a prolonged industrial dispute.
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