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World markets recover after early slump; Europe election results cause brief stumble

Stock markets recovered around the world after an early stumble caused by election results in France and Greece that appeared to jeopardize Europe's plans for fighting its debt crisis.

Investors Monday worried that the shifting political landscape in Europe could undermine the region's long battle to keep its shared currency intact and restore the faith of global investors. European markets slumped early on but closed higher after worries about the changes dissipated..

Investors were also relieved after Spain announced a plan to present measures this week to support the country's ailing banks. Prime Minister Mariano Rajoy said he would not rule out lending or injecting public money into the country's financial system.

Stocks spiked in Spain, ending up 2.7 percent. France's main index gained 1.7 percent. The euro recovered ground it lost against the dollar.

In the U.S., the Dow Jones industrial average fell as much as 68 points in early trading but recouped its losses and even gained 10 points by the afternoon. The Dow finished the day down 29.74 points, or 0.2 percent, at 13,008.53.

The Standard & Poor's 500 also started the day lower but ended up 0.48 points at 1,369.58. The Nasdaq composite index rose 1.4 points to 2,957.76.

The election results in Europe showed that voters were rejecting the extreme belt-tightening required by international bailouts and favored by Germany's leadership.

Investors are waiting to hear the newly elected leaders in France and Greece articulate their visions for how to deal with the eurozone's debt crisis. That is why there is a muted reaction from stock markets, according Kim Caughey-Forrest, equity research analyst at investment firm Fox Pitt Capital Group.

"There is no reason to cry until you get hurt," said Caughey-Forrest.

The verdict from European voters will likely force leaders there to go back to the table and come up with more acceptable solutions to the debt crisis that has plagued many nations. The deep cuts in government spending have already worsened the situation in many countries, leading them into deeper economic distress and increasing already high unemployment.

Many believe the austerity programs are necessary to keep bond investors from panicking about the possibility that more European nations will default or require bailouts.

However, a growing number of politicians say the cuts have been too much, too fast. They say the region's economy can't return to growth unless governments stop tightening the fiscal noose and start spending again to create demand. Some economists also now believe that the cuts have to be accompanied by some government economic stimulus to promote growth.

"We are going to hear a more balanced prescription coming out of the European leadership," said Quincy Krosby, a market strategist at insurer Prudential Financial. "The elections were a strong message for pro-austerity leaders from the people."

Initially, traders also bought up ultra-safe Treasurys overnight when stock markets in Europe were falling. That pushed the yield on the 10-year note as low as 1.83 percent early Monday, a level it hadn't reached since early February. However, the yield rebounded to 1.88 percent in late trading, the same level it was at late Friday.

Earlier in Asia, Japan's Nikkei index plunged 2.8 percent to its lowest finish in three months. In addition to Europe's elections, it was also the first time for investors in Asia to react to a weak jobs report Friday in the U.S. Hong Kong's benchmark Hang Seng index slid 2.6 percent.