For Dow average, a V-shaped recovery in a day

Talk about V-shaped recoveries. This month, it seems to be happening on almost a daily basis in the stock market.

The pattern goes something like this: Fret about Europe's debt jitters in the morning (when European markets close), rally on hopes that the the US economy is improving.

This fear-hope pattern was particularly noticeable in Tuesday's markets. The Dow fell a whopping 292 points early in the trading day and then clawed almost all the way back to close at 10,043 points, down only 22 points for the day.

Similarly, the Standard & Poor's 500 index spent most of the day in deeply negative territory, down more than 3 percent at one point, before turning positive in the last five minutes before the close.

What does all this volatility tell us? Investors seem to be trying to figure out how -- and whether -- the debt problems in Europe have an impact on the US markets.

As far as direct connections are concerned, the impact is fairly minimal. Europe can slow America's recovery but it can't stop it, economists say.

The bigger issue is whether the debt problems affecting southern Europe will come to haunt the United States. This is difficult to gauge because it involves investor confidence in governments.

When that sentiment turns negative, things can unravel very quickly. Once traders began charging higher rates to buy Greek debt, the jig was up. The rise in rates meant that over-indebted Greece would have to pay even more to roll over its debts, which made investors nervous. So they raised rates even more. And so on.

Greece needed a European Union/International Monetary Fund backstop to keep from defaulting.

Interest rates have started creeping up on other indebted EU members, like Portugal, Italy, and Spain. The interest rate on Spanish six-month bills rose from 0.76 percent in April to 1.32 percent Tuesday.

That's a big and worrisome jump.

Will those worries spread to the US? The US is bigger and stronger than Spain. And while it carries a higher ratio of debt to overall output, it also has its own currency, which gives Washington policymakers more flexibility to respond to debt jitters.

Even more important, US growth prospects look better than Europe's right now.

That's probably why on Wall Street, fear in the morning is replaced by hope in the afternoon.