European financial markets steadied on Tuesday, with the euro jumping against the Swiss franc, after a sharp sell-off a day earlier due to fears for the euro zone's future and that of its banking sector.

Core German debt yields, however, stayed at historic lows, well below 2 percent, signaling a frenzied search for safety was still in place.

World stocks as measured by MSCI were down 0.2 percent, mainly because of a catch-up fall of 2.2 percent on Japan's Nikkei.

European stocks fell more than 4 percent on Monday on renewed worries about the euro zone's ability to solve its debt problems and its banking sector's exposure to both peripheral bonds and a U.S. law suit over mortgage-backed securities.

Tuesday's market moves were typical of those that accompany big market moves, in which investors pause before deciding which direction comes next.

These persistent euro zone worries are back in play once again amidst signs that austerity measures may be faltering, whilst last Friday's disappointing (U.S.) non-farm payrolls (data) continue to leave the markets with something of a hangover, said Cameron Peacock, analyst at IG Markets.

Market reaction to the euro zone crisis is being exaggerated by global concern about the state of the U.S. economy, which is in danger of slipping back into recession.

Europe's own economy is also weak.

Japanese, Chinese and South Korean financial regulators discussed the global threats in a conference call.

We are already at stall speed in the U.S. and Europe, which means we are now more likely than not to see a recession, said Tharman Shanmugaratnam, Singapore's finance minister.

SEEKING OPPORTUNITIES

The pan-European FTSEurofirst 300 was up 0.3 percent but the banking sector remained under stress, falling 0.4 percent.

Some investors were looking for opportunities among the turmoil. The euro, for example, jumped 1 percent on the day against the Swiss franc with traders citing buying by a U.S. investment bank.

The euro traded flat on the day against the dollar at around $1.41, trimming losses after falling to a 1 1/2-mth low of $1.4038 in earlier trade.

Euro zone government bonds were flat, with the 10-year Bund yielding 1.837 percent.

(Additional reporting by Atul Prakash)

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