European markets build on gains

(CNN) -- Europe's major markets moved higher for a second straight day, gaining 1 to 2 percent during Tuesday morning trading.

Major Asia and Pacific markets finished mixed in the waning days of a dismal year.

In Tokyo, the Nikkei closed 1.3 percent higher during an abbreviated final trading day of 2008. Despite the positive session, the index closed with its worst-ever annual percentage fall, losing 42.1 percent.

Elsewhere across the region, the KOSPI in Seoul gained 0.6 percent, while Australia's All Ordinaries index closed 1.1 percent higher. Hong Kong's Hang Seng lost 0.7 percent.

Stocks fell Monday on Wall Street, closing lower amid global tensions and downbeat corporate news.

The Dow Jones industrial average settled at 8,483.93, down 31.62 points or 0.37 percent, after falling more than 1.5 percent earlier in the session. The broader Standard & Poor's 500 index retreated 3.38 points to 869.42. The Nasdaq composite fell 1.3 percent, 19.92 points, to 1,510.32.

Trading has been subdued recently, with many investors on vacation or holding off on large transactions until 2009. On Friday, stocks drifted higher in a thinly traded session but still ended the week lower.

For the year, all three major indexes are down sharply: The Dow is off nearly 36 percent versus last year; the S&P 500 has tumbled 41 percent; and the Nasdaq is off 42 percent.

Looking ahead, the Conference Board is due to release its December index of consumer confidence Tuesday morning. The index is expected to rise to a reading of 45.2 from 44.9 in November, still near the lower end of its historic range.

Also on Tuesday, a survey of purchasing managers in the Chicago area is expected to reveal further declines in manufacturing activity.

Monday's retreat came despite a lack of economic data, and many analysts warned that low participation could be amplifying the selloff.

"There's no buying going on," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York. "Everyone is sitting on their hands until the end of the year."

Still, the collapse of a high-profile venture and concerns about the world's political situation weighed on the market.

Shares of the nation's largest chemical company plummeted after a major deal with Kuwait's state-run petrochemical company fell apart.

Petrochemical Industries Co. decided Sunday to scrap a $17.4 billion deal to form a joint venture with Dow Chemical, citing the recent decline in oil prices.

The news called into question Dow's ability to repay some $13 billion in debt it will take on once its acquisition of rival Rohm & Haas closes in early 2009. Dow's stock fell nearly 19 percent and Rohm & Haas was down 16 percent on the news.

Also, investors are afraid that ongoing strife in the Middle East and tensions between India and Pakistan could destabilize fragile markets overseas.

"There's a lot of uncertainty in the world, which gives people less incentive to buy stocks," Rovelli said.

Israeli warplanes struck the Gaza Strip for a fourth day Tuesday in response to mortar and rocket attacks. The attacks caused a short-lived rally in the oil market, with crude spiking above $42 a barrel Monday before retreating a bit, settling up $2.31 to $40.02 a barrel.

While the air strikes do not pose an immediate threat to oil installations, many analysts worry that the conflict could disrupt production in the oil-rich Middle East region.

Meanwhile, shares of oil companies Chevron and Exxon Mobil both rose moderately.

The market also is concerned about a possible confrontation between India and Pakistan over last month's militant attack on Mumbai.

Pakistan has denied reports that it has deployed large numbers of troops to its border with India in anticipation of military action. India blames Pakistan-based militants for the assault in which 179 people were killed.

Bank stocks were mostly lower despite the news that a consortium of private equity and hedge fund firms, including J.C. Flowers & Co and Dune Capital Management, is reportedly close to a deal to buy the assets of failed mortgage lender IndyMac.

Citigroup, Bank of America and J.P. Morgan all retreated.