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European shares have recovered slightly from Monday's sharp falls as investors shook off rising Spanish bond yields and worsening forecasts of Greek economic contraction.
Italy and the Netherlands also had to pay a higher rate to borrow money.
France's Cac40 rose 2.3%, Germany's Dax rose 1.0% and the UK's FTSE 100 gained 0.8%. Wall Street closed up 0.6%.
Shares fell on Monday on weak manufacturing data and political concerns in France and the Netherlands.Wary investors
Madrid raised almost 2bn euros ($2.6bn; £1.6bn) in its latest auction of short-dated bonds, but the interest rate, or yield, it had to pay to attract lenders rose sharply.
The yield on six-month bonds hit 1.58%, up from 0.84% in a similar sale last month. The yield on three-month bonds rose to 0.63% from 0.38%.
The rising rate suggests investors are becoming more wary of lending to Spain as doubts about the country's ability to repay its debts continue to spread.
"The pick-up in yields is a clear negative headline for Spain," said Jo Tomkins, analyst at consultancy 4Cast.
"The country is facing a double-whammy of low growth and tough austerity, and doubts that it will be able to hit already optimistic deficit targets."
However, demand for the bonds was high and the money raised was at the top end of Madrid's target.
Italy was also forced to pay a higher yield in a sale of two-year debt. It raised 3.4bn euros at a rate of 3.36%, up from 2.35% a month ago.
The Netherlands also raised 2bn euros in a bond sale the day after the government fell following a disagreement on austerity measures between coalition partners.Recession
Meanwhile, the Greek central bank has revised its forecast for economic contraction for this year to approaching 5%, worse than its previous estimate of 4.5%.
Greece has effectively been in recession for four years, and with tough austerity measures required as part of the conditions of two bailout packages worth more than 200bn euros, its economy is unlikely to grow in the near future.
Stock markets fell sharply on Monday following survey data suggesting manufacturing activity in Germany in April fell to an almost three-year low.
Figures for the wider economy, both in Germany, France and the eurozone as a whole, also showed a deeper contraction.
Political uncertainty in the Netherlands and in France, where President Nicolas Sarkozy narrowly lost to socialist rival Francois Hollande in the first round of France's presidential election on Sunday, also hit investor confidence.