London:Fears of a nuclear catastrophe in Japan after last week’s earthquake and tsunami prompted a near 11% slide in the country’s main stock market on Tuesday, but counter-intuitively pushed the yen near post-World War II highs against the dollar.
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Investors in the stock markets took fright on the news that a radiation leak was detected at a crippled power plant and residents were warned to stay indoors. The benchmark Nikkei 225 stock average sank a staggering 10.6%—more than 1,000 points—to close at 8,605.15 after sliding as much as 14%.
Since the disaster struck on Friday, the Nikkei has suffered its worst two-day losses for 40 years.
The chill was felt across all markets. The yen jumped as it benefited from its traditional status as a safe haven for investors in times of uncertainty and funds flowed into Japan to pay for reconstruction.
Gold fell 3% at one point, on track for its biggest one-day loss since July, as the worldwide rout in equity markets forced speculators to sell bullion to cover losses. Spot gold prices fell $27.81 to $1,398.80 an ounce.
Meanwhile, oil prices took another hit on fears over the impact on global consumption despite the unrest in the Arab world, most notably in Libya and Bahrain.
“Fear of the unknown is really weighing on the markets,” said Shawn Matthews, CEO of Cantor Fitzgerald Lp.
Stocks nosedived all round the world.
In Europe, German stocks were the worst performing as the country has relatively big economic ties with its export-reliant peer. The main DAX index was down 4.9% at 6,531, with many industrial giants such as BMW AG, Volkswagen AG and Daimler AG trading down by even more.
France’s CAC-40 slid 3.8% to 3,729, with leading nuclear reactor manufacturer Areva SA down more than 9%. Britain’s FTSE 100 index fell 2.5% to 5,632.
US markets were hit hard at the open—the Dow Jones industrial average was down about 254 points, 2.1% at 11,744, while the broader Standard and Poor’s 500 index slid around 31 points, or 2.4%, to 1,258.10.
The catalyst to the panic selling in Japan was the announcement from the prime minister that radioactive material had leaked from the Fukushima Dai-ichi nuclear plant in Fukushima province and that more leaks were possible. People living within 30km of the complex were told to stay indoors.
The stock sell-off in Tokyo hit nearly every business sector, with electric companies under intense pressure again. The Tokyo Electric Power Co. Inc., which operates the crippled nuclear plant, crashed 24.7%. Toshiba Corp., a maker of nuclear power plants, wilted 19.5%. Other companies with nuclear power-related businesses faced a second day of free-falling losses. These included Mitsubishi Heavy Industries Ltd, Kobe Steel Ltd and Hitachi Ltd.
Asian markets could not withstand the tide of negative sentiment. South Korea’s Kospi lost 2.4% and Australia’s S&P/ASX 200 fell 2.1%. Hong Kong’s Hang Seng index dropped 2.9%. In mainland China, the Shanghai Composite Index fell 1.4%, while the smaller Shenzhen Composite Index lost 1.3%.
Oil prices dropped sharply despite tensions in the West Asia, with the regime of longtime Libyan leader Moammar Gadhafi recapturing lost ground from rebels and Saudi Arabian troops entering Bahrain to help out the embattled rulers.
By mid-afternoon London time, a barrel of crude as traded on the New York Mercantile Exchange was down $3.32 at $97.87 while Brent crude fell below $108 a barrel for the first time in nearly three weeks.
In currency markets, the yen was a big gainer, partly through its capacity as a safe haven asset in times of increased global risk. That means that even when occurring on Japanese soil, a major natural disaster can bolster the yen.
By mid-afternoon London time, the dollar was 1.1% lower on the day at 80.82 yen, not far from its post-World War II low of 79.75 yen, hit in April 1995.
Graphics by Ahmed Raza Khan/Mint
Reuters contributed to this story.