American tech shares tanked Monday, with Nvidia tumbling almost 17 percent, after China's DeepSeek unveiled its R1 chatbot, which it claims can match the capacity of top US AI products for a fraction of their costs.
Nvidia, which designs chips used in AI applications, clawed back gains of 8.9 percent on Tuesday, leaving it well below last week's levels.
All three major indices on Wall Street finished higher, with the Nasdaq Composite rising 2.0 percent buoyed by a rise in tech stocks, reversing some of its losses from Monday.
Despite these gains, Briefing.com's Patrick O'Hare noted that this was not a broad market advance.
The rally was "probably more of a reflection of people embracing the idea that yesterday's sell off in these mega cap and AI plays was overdone," he said.
Elsewhere, European stock markets were mixed while oil prices inched up, as traders awaited interest-rate decisions from the US Federal Reserve and European Central Bank this week.
- Nvidia bounceback -
Nvidia's Monday plunge wiped close to $600 billion from its market capitalization -- the largest single-day loss for a public company in stock market history.
The Nvidia sell-off "may have gone too far," said Kathleen Brooks, research director at XTB, adding that there were doubts over whether DeepSeek's AI was developed as cheaply as it claims.
"It may be too early to write off Nvidia yet, even though the prospect of a Chinese rival is causing a crisis for the chip maker," she added.
Gains in US equities last year were driven by a handful of large tech stocks led by Nvidia, and the wider stock market largely avoided Monday's rout.
"It's difficult to work out if the worst is now over, or if yesterday's slump was just another sign that the top is already in for US equities," said David Morrison, senior analyst at Trade Nation.
Earlier, Tokyo fell as AI-linked companies were pulled lower and new comments by US President Donald Trump rattled analysts.
The dollar rose after Trump said Monday that he wanted universal tariffs "much bigger" than the 2.5 percent suggested by his newly-confirmed Treasury Secretary Scott Bessent, fanning fresh fears about a trade war.
Trump said he wants high tariffs on imported metals, pharmaceuticals and semiconductors.
Investors will turn their attention to interest-rate decisions this week.
The Federal Reserve's policy-making committee meets Wednesday and is largely expected to leave rates unchanged, despite Trump's calls for lower interest rates from the independent US central bank.
A day later, the European Central Bank will hold a press conference after its first meeting of the year, with some analysts expecting a small cut in lending rates.
- Key figures around 2130 GMT -
New York - Dow: UP 0.3 percent at 44,850.35 points (close)
New York - S&P 500: UP 0.9 percent at 6,067.70 (close)
New York - Nasdaq Composite: UP 2.0 percent at 19,733.59 (close)
London - FTSE 100: UP 0.4 percent at 8,533.87 (close)
Paris - CAC 40: DOWN 0.1 percent at 7,897.37 (close)
Frankfurt - DAX: UP 0.7 percent at 21,430.58 (close)
Tokyo - Nikkei 225: DOWN 1.4 percent at 39,016.87 (close)
Hong Kong - Hang Seng Index: UP 0.1 percent at 20,225.11 (close)
Shanghai - Composite: Closed for a holiday
Euro/dollar: DOWN at $1.0433 from $1.0492 on Monday
Pound/dollar: DOWN at $1.2440 from $1.2496
Dollar/yen: UP at 155.53 yen from 154.61 yen
Euro/pound: DOWN at 83.84 pence from 83.94 pence
Brent North Sea Crude: UP 0.5 percent at $77.49 per barrel
West Texas Intermediate: UP 0.8 percent at $73.77 per barrel
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