The selling in Europe continued before the markets staged a mild rebound -- which analysts attributed to short-covering and/or the U.S. Federal Reserve's action Tuesday morning to slash both the Federal Funds rate by 75 basis points to 3.50% and the Discount Rate by 75 basis points to 4.00%.

"The Fed's intervention...true, won't necessarily stop the selling that people are doing for fundamental reasons, but it will help calm the markets and reduce people's urge to sell because they fear the markets will freeze up....sell for fear reasons," London-based economist Mark Chandler told BloggingStocks on Tuesday.

There was also talk that the Fed's action will be coordinated with or followed by ensuing actions by the European Central Bank and the Bank of England to ensure the proper function of the markets, Chandler said.

At mid-day Tuesday, Europe's major bourses were down an average of 1% across the board. London's FTSE was down 24.90 points to 5,553.30, France's CAC 40 fell 56.86 points to 4,687.59, and the German DAX fell 147.32 to 6,642.87.

Chandler said the 2% stock market decline in Germany "probably reflects Germany's increased exposure to subprime mortgages and mortgage assets, but we really won't be able to confirm that definitively until later."

Further, Chandler added that he was surprised that the "equity selling was relatively mild in England, given the nation's large housing debt overhang."

Among the major decliners were German bond insurer Allianz, which fell 3.8% to 115.42 euros, and insurer Munich Re, which fell 2.3% to 111.01 euros, The Financial Times reported.

Among oil stocks, France's Total declined 2.7% to 48.60 euros and Austria's OMV lost 3% to 45.20 euros, while Portugal's Galp Energia rose 9.9% to 15 euros, The FT reported.