The futures market had our market opening solidly at almost 3%, or just under 130 points on the ASX200 index.
But Australian market will be hit by the National Australia bank's after hours news of another $400 million in write-downs on credit derivatives in the US.
The loss will be spread over five years and its a $100 million loss in the first year, which ended yesterday.
The news will not be taken kindly and will take some of the gloss off the rebound overseas.
Wall Street's rise was more a nervous reaction than a definitive assertion of confidence.
It was the biggest rise in six years, but even so the S&P500 had its worst month since 2002 with a fall of 9.2% for the month and 9% for the quarter.
Oil bounced back over $US102 a barrel, gold reversed itself and tumbled $US28 to around $US865 an ounce, and then rose in Asian trading to around $US873; copper fell by just under 3 US cents to $US2.87 a pound in New York and then rose a touch in early Asian dealings.
The US dollar traded up around $US1.41 to the euro and our dollar was around 79.30 US cents.
Traders ignored figures showing static consumer spending in August and another fall in home prices in July.
European markets were lower in early trading last night, following Asian markets lower, but US markets were trading higher in early futures dealings.
Europe fell after the Dexia bank in Belgium was bailed out with a total of $US9.2 billion of fresh capital from the French, Belgian and Luxembourg governments, plus regional Governments in Belgium. Dexia shares rose 6.1% yesterday after that 30% loss Monday.
Europe's Stoxx 600 index was up around 1.6% and indexes rose in 14 of the 18 western European markets. The UK's FTSE 100 added 1.7%, France's CAC 40 gained 2% and Germany's DAX rose 0.4%. Ireland's ISEQ Index jumped 7.9% after the Irish Government guaranteed deposits in six leading banks and building societies for the next two years.
The London market was off 13% in the month and 12.9% for the quarter.
Asian stockmarkets fell as investors recovered their poise in afternoon trading across the region yesterday.
Large early losses were trimmed during the day.
Monday's fall on global markets was the worst in 21 years with the MSCI global index off 6.9%.
But selling returned in the afternoon and Tokyo's Nikkei dropped 4.1% by the close and the MSCI Asia Pacific Index was off around 3%.
Australia was off more than 5% at the start, but rebounded as the day went on, but then the selling returned in the afternoon and the market finished down over 4%, or 207 points.
The futures market overnight Monday showed a 330-plus fall at the start yesterday or a 7% plus fall. That was influenced by the plunge on Wall Street and we never got near that, which was a small positive.
Hong Kong shares dropped as much as 6.1%, the Nikkei in Japan lost 5.0% early on, and Taiwan, which had been closed on Monday, lost as much as 6.7%.
Japan's put the market at its lowest level since late 2004.
South Korea and Taiwan temporarily banned short selling and Hong Kong's regulator reminded investors that it would punish aggressive shorting.
The MSCI Asia Pacific Index had fallen 4% by late morning in Tokyo, extending the drop of 4.9% of the previous five days. But that was further trimmed as the day went on and share prices edged higher.
China and Taiwan were closed for holidays.
The MSCI Asian index is down 31% this year and the Australian market is off 35%.
Japan's Nikkei was down almost 5% at one stage, lost 4.1% by the close, while Taiwan's Taiex index dropped 3.6%.
South Korea, Taiwan and Indonesia placed bans on short selling yesterday in the wake of the failure of the US bailout.
Regulators in Seoul said they will temporarily ban short selling on all stocks to arrest a drop of more than 20% in the country's stock market this year. Taiwan tightened limits on short selling for the remainder of the year. Indonesia's stock exchange banned short selling for the month of October.
In Australia the market dropped around 4.3%
The ASX200 closed 206.9 points, or 4.3%, lower at 4600.5, its lowest finish in nearly three years. The All Ords was off 4.3% as well, closing down 208 points at 4631.3.
Australian market fell by around 11% or just over 570 points in September. Over the three months to september, the ASX 200 was off around 560 points, or about 11% as well.
At the opening yesterday it was down 5.6%, wiping more than $A60 billion in value off the market's value.
The biggest drag on the index came from global miner BHP Billiton, which shed a massive 9.5%, or $3.24, to $31.00. Its takeover target, Rio Tinto plummeted 11.5%, or $11.00, to $84.50, its lowest level in more than two years.
Rival iron ore miner, Fortescue Metals slumped 94 cents, or 17%, to $4.66.
But BHP and Rio were both stronger overnight, so that should produce gains here today, despite the NAB's surprise news.
Banks were also savaged. Westpac was hit for a second day, losing $1.67, or 7.2%, to $21.48 yesterday after a sharp fall on Monday.
The Commonwealth Bank dropped $1.25, or 2.9%, to $42.62, NAB shed $1.43, or 5.6%, to $24.26 and surprisingly. The ANZ lost just 4 cents, or 0.2%, to $18.75.
Yesterday was the end of the financial year for Westpac, the NAB, ANZ, bank of Queensland and St George.
It will be a year the banks and their shareholders won't forget for quite a while.
Investment bank Macquarie Group fell 20 cents, or 0.5%, to $37.00. It had been down far more in early trading, hitting a day's low of $31.60, so it had a very strong afternoon.
Rival Babcock & Brown plunged 40.5 cents, or 17%, to $1.945 as investors reassessed the recent optimism about its outlook since the short selling ban was introduced early last week.
