HONG KONG: Equities stabilised and oil prices saw a much-needed gain Tuesday after their latest flop as bargain-buyers moved in, though investors remain fixated on the fast-spreading Omicron coronavirus variant and moves to contain it over the festive period.

Reports that moderate Democratic Senator Joe Manchin could still be willing to discuss US President Joe Biden's $1.75 trillion social spending bill -- having delivered a blow to the White House Sunday by rejecting it -- also provided a little support, with talks likely to drag.

Markets have been lashed since the emergence of Omicron as it spreads quickly through populations, forcing governments to impose anti-virus measures that are economically damaging.

The Netherlands has imposed a lockdown over the holiday period, Germany has tightened restrictions notably affecting the unvaccinated, and media speculation has swirled over possible tougher UK curbs.

"There is more uncertainty than I think most people thought we would see here as they were anticipating a Santa Claus rally," said Victoria Fernandez of Crossmark Global Investments on Bloomberg Television.

"Volatility and uncertainty are the key terms that will lead us into the new year."

And National Australia Bank's Ray Attrill added: "For now... it's the short term economic impact of the virus spread and related restrictions that (are) front and centre of market focus."

All three main indexes on Wall Street ended down more than one percent, though they pared early losses.

Asia and Europe were on the front foot Tuesday.

Tokyo added more than two percent, while Hong Kong jumped one percent. There were also healthy gains in Shanghai, Sydney, Seoul, Singapore, Taipei, Wellington, Mumbai, Jakarta and Bangkok.

London, Paris and Frankfurt all rose around one percent in opening trade.

Crude rose too, with both main contracts rallying after being hammered in recent days by concerns that new Omicron measures will erase demand, with travel curbs already in place in several countries and many people choosing to stay home.

Fragile sentiment

While the gains are welcomed, OANDA's Jeffrey Halley warned: "Sentiment remains exceedingly fragile, complicated by rapidly thinning liquidity in asset classes ahead of the holiday season and year-end.

"We are one headline away, be it Omicron or something else, from normal service resuming. December is about V for Volatility and not directional market trends."

The latest wave of Covid cases comes just as central banks around the world begin to remove the ultra-loose monetary policies put in place at the start of the pandemic to protect economies from the ravages of lockdowns.

The Bank of England announced a surprise rate hike this month, joining a number of others. The Federal Reserve finally gave up on its insistence that inflation would be temporary and announced a faster taper of its vast bond-buying programme.

The US central bank is tipped to lift borrowing costs three times before the end of 2022, bringing the curtain down on the era of cheap cash that has helped fuel a global market rally since the early days of the Covid crisis.

"Monetary policy normalisation will continue to bring volatility and will maintain the bull-bear debate between growth and value," said Zehrid Osmani at investment manager Martin Currie.

"The Omicron variant may disrupt both economic momentum and monetary policies, should it lead to renewed significant lockdown measures."

The Turkish lira extended gains against the dollar, climbing 15 percent after surging Monday in response to measures announced by the government to bolster the beleaguered currency.

The unit had suffered heavy selling after President Recep Tayyip Erdogan affirmed at the weekend that his Islamic faith prevented him from supporting rate hikes to bring inflation under control, instead opting to reduce costs.

However, observers said he bowed to market pressure and raised rates by stealth when he announced a complex series of measures Monday.

Key figures around 0820 GMT

Tokyo - Nikkei 225: UP 2.1 percent at 28,517.59 (close)

Hong Kong - Hang Seng Index: UP 1.0 percent at 22,971.33 (close)

Shanghai - Composite: UP 0.9 percent at 3,625.13 (close)

London - FTSE 100: UP 1.0 percent at 7,268.52

Dollar/yen: UP at 113.66 from 113.61 yen late Monday

Pound/dollar: UP at $1.3237 from $1.3204

Euro/dollar: UP at $1.1292 from $1.1281

Euro/pound: DOWN at 85.30 pence from 85.40 pence

West Texas Intermediate: UP 0.7 percent at $69.12 per barrel

Brent North Sea crude: UP 0.4 percent at $71.83 per barrel

New York - Dow: DOWN 1.2 percent at 34,932.16 (close)