Stocks in Tokyo slid the most since 2008, while US futures and oil retreated after Japan’s biggest earthquake on record. The euro strengthened, bank shares rose and Greek bonds soared as European leaders agreed to expand the region’s rescue fund.
The Nikkei 225 Stock Average plunged 6.2 per cent, the largest drop since December 2008. The Stoxx Europe 600 Index fell 0.3 per cent at 11:06 am in London, and futures on the Standard & Poor’s 500 Index declined 0.4 per cent. Crude in New York lost 1.9 per cent to less than $100 a barrel, while the euro rose against all but one of its 16 most-traded peers. The yield on the Greek 10-year bond sank 55 basis points, with the cost of insuring European sovereign debt falling the most in five weeks.
The Bank of Japan pumped a record 15 trillion yen ($183 billion) into the financial system and doubled the size of its asset-buying program to shield the economy from the effects of the quake. Officials in Europe widened the scope of their 440 billion-euro ($614 billion) bailout fund and eased the terms of Greek rescue loans, even as they resisted calls to buy bonds in the open market or finance buybacks.
“People are selling stocks in Japan because nobody knows the extent of the damage at the moment, and the rebuilding costs are likely to be huge,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “As for Europe, the decision from Brussels is likely to provide a boost for euro assets. The positive impact may be short-lived, though. The measures may buy them more time, but the solutions present no panacea for the debt crisis.”
Nuclear stocks
The slump in the Nikkei 225 pushed the index to the lowest level in four months as the official death toll from the quake reached 1,833, with 2,369 more missing and 1,898 injured. Tokyo Electric Power Co, which is battling to avoid a meltdown at its Fukushima nuclear plant following a hydrogen explosion, tumbled 24 per cent. Toshiba Corp, a maker of nuclear reactors, slid 16 per cent.
Default swaps on Tokyo Electric Power Co soared more than 220 per cent to a record 133 basis points, while contracts on Japan jumped 11 to 94, that highest since July, according to CMA.
Three stocks fell for every two that gained in the Stoxx Europe 600. Swiss Reinsurance Co and Munich Re, the world’s biggest reinsurers, lost more than three per cent. Burberry Group Plc sank 4.6 per cent, leading luxury-goods companies lower amid speculation sales in Japan may suffer.
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Banks rally
E.ON AG and RWE AG, Germany’s largest nuclear power plant operators, fell more than three per cent on concern the Japanese reactor explosions may persuade the German government to backtrack on extending the life of atomic plants. Areva SA, the biggest provider of nuclear equipment and services, sank 9.1 per cent, the most since November 2008. Solarworld AG and Renewable Energy Corp. ASA led gains in alternative-energy shares, rallying more than 9 per cent.
Banco Santander SA, Spain’s biggest lender, led a rally in European banks after the region’s leaders agreed to reinforce the bailout fund. BNP Paribas SA, France’s largest bank, climbed 2.4 per cent and Societe Generale SA advanced 3.3 per cent.
The MSCI Emerging Markets Index climbed 0.7 per cent, led by automakers and steel producers including South Korea’s Hyundai Motor Co and Russia’s OAO Severstal, after the quake damaged plants of Japanese rivals and spurred speculation that raw-materials demand will increase as the country rebuilds.
Euro strengthens
The euro climbed 0.5 per cent to $1.4, and jumped 0.8 per cent against the yen to 114.6. The Australian and New Zealand dollars fell. The extra yield, or spread, investors demand to hold Greek 10-year bonds instead of benchmark German bunds narrowed 60 basis points, with the Portugal-German spread contracting 22 basis points. Irish bonds underperformed, with the gap to bunds shrinking seven basis points, as EU leaders rejected the nation’s bid for relief after Prime Minister Enda Kenny refused to increase the country’s 12.5 per cent corporate tax rate.
The cost of insuring European sovereign debt dropped the most in five weeks. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 14.5 basis points to 174.
The decline in S&P 500 futures indicated the benchmark gauge for US equities will drop for the third time in four days. General Electric Co lost 2.3 per cent in pre-market New York trading. The incidents at the Japanese nuclear plants have compelled China and India to review plans for atomic energy that were set to provide a boon for suppliers including Areva and GE.