World stocks racked up more losses on Monday on deep-rooted jitters about the U.S. ratings cut, but signs the European Central Bank was buying Italian and Spanish debt gave some respite to battered bond markets.
European share were down 1.5 percent after earlier putting in gains on the ECB action to take the heat out of the spreading euro zone debt crisis.
Five-year yields in Italy and Spain fell around a full percentage point, spreads against German debt narrowed and the cost of insuring them against default dropped.
Gold nonetheless soared to a new record above $1,700 an ounce on safe-haven buying, the dollar weakened against a basket of major currencies, and stocks fell globally.
Investors were coming to grips with a weekend of talks between industrialized countries aimed at safeguarding the smooth functioning of financial markets following agency S&P's cut in its U.S. rating late on Friday to AA-plus from AAA.
The downgrade to the U.S. is not great. These markets are going to remain unsettled for a while, we had recommended investors to raise cash in anticipation of this volatility, said Mike Lenhoff, chief strategist at wealth manager Brewin Dolphin.
MSCI's all-country world index was down nearly three quarters of a percent on Monday, extending a heavy bout of selling on risk aversion that last week chopped around $2.5 trillion off the value of the index.
Emerging market stocks fell a further 2 percent.
European shares as measured by the FTSEurofirst 300 index struggled into positive territory but then went into reverse, dropping 1.5 percent.
The ECB's bond moves followed criticism last week that the bank had not addressed pressure on Spain and Italy when it bought Portuguese and Irish debt last week.
Traders said Monday's buying was focused on the 5-year sector of the curve, where Italian yields dropped to around 4.6 percent while the Spanish equivalent was around 4.5 percent.
They're doing 20 to 25 million (euro) clips and they're spreading it around the market, said a trader. We expect them to do billions today.
The euro rose against the dollar and trimmed losses against other currencies.
The U.S. currency fell across the board after Friday's S&P downgrade, struggling close to record lows against the Swiss franc and the yen.
But the euro's gains were limited, and some analysts expected it would struggle to gain significantly, as bond purchases, while adding temporary liquidity to stressed debt markets, would do little to improve the fiscal problems in the region.
(ECB bond buying) will have a short-term effect. It won't have any lasting positive impact on the euro, said Richard Falkenhall, currency strategist at SEB in Stockholm.
Even if the ECB buys Italian bonds, private investors will just sell and offload their Italian risk ... The ECB will have to buy those bonds constantly just to keep yields stable, he said.
(Additional reporting by Naomi Tajitsu, William James, Kirsten Donovan and Dominic Lau; editing by Patrick Graham, John Stonestreet)