* Equity markets tumble as radiation fears spark rout
* Yen rises on risk aversion after quake
* Oil slides further on Japan nuclear concerns
* Government debt rallies on safe-haven trades
(Adds fresh quotes)
By Herbert Lash
NEW YORK, March 15 (Reuters) - Fear of a nuclear
catastrophe in Japan pounded world stock markets on Tuesday,
shredding $1 trillion in equity valuations as investors dumped
assets considered risky and sought the safety of government
debt.
Gold fell 3 percent at one point, on track for its biggest
one-day loss since July, as the worldwide rout in stock markets
forced speculators to sell bullion to cover equity losses.
The global wave of risk aversion slammed oil prices,
driving Brent crude futures <LCOc1> below $108 for the first
time in three weeks.
"Investors around the world have been collectively trying
to reduce their risk exposures across the board," Mohamed
El-Erian, the co-chief investment officer at Pacific Investment
Management Co in Newport Beach, California, told Reuters.
"This is a vivid illustration of top-down factors totally
dominating bottom-up considerations when it comes to investor
positioning," said El-Erian, who helps oversee $1.1 trillion in
assets.
European shares fell to their lowest level in 3-1/2 months,
the Nasdaq was on the cusp of turning negative for the year and
Japan's Nikkei average sank 10.6 percent, marking its worse
two-day sell-off since 1987 as reports of rising radiation near
Tokyo rattled investors.
A crippled reactor at the nuclear complex in Fukushima
exploded and sent low levels of radiation floating toward
Tokyo, prompting some people to flee the capital and others to
stock up on essential supplies. []
The nuclear crisis is equivalent to a six on the INES scale
of nuclear accidents that ranges from 1 to 7, Kyodo news agency
quoted the French Nuclear Agency as saying. The 1986 Chernobyl
disaster was a seven and Three Mile Island a five.
The "fear trade" sparked widespread selling in high-yield
"junk" bonds, crude oil and global stocks, said Dan Fuss, vice
chairman of Loomis Sayles, which manages more than $150 billion
in assets.
"Our central bank will be supportive so markets do not go
to pot, given the contagion factor," Fuss said.
MSCI's all-country world stock index <.MIWD00000PUS>, which
was valued at about $28.6 trillion on Monday, shred about $1
trillion as the crisis thrust financial markets into turmoil.
The index was down 2.7 percent after paring some losses.
Government debt prices rallied, with German Bunds
outperforming other euro zone bonds, and yields on 10-year U.S.
Treasuries fell to a six-month low overnight. Tax-free U.S.
municipal bonds, which typically rally when stocks sell off,
also rose sharply.
Munis, a $2.9 trillion market that local and state
governments in the United States tap to finance roads, schools
and other infrastructure, largely sat out Monday's worry-driven
trade in Treasuries but gained on Tuesday. []
Traders caught betting that prices would fall had to
quickly reverse their positions.
The benchmark 10-year U.S. Treasury note <US10YT=RR> shot
up 23/32 in price to yield 3.27 percent.
"The market will be very hesitant to set up new shorts
after a rally like this," said Christian Cooper, head of dollar
derivatives trading at Jefferies & Co. in New York.
At midday on Wall Street, The Dow Jones industrial
average<> was down 207.34 points, or 1.73 percent, at
11,785.82. The Standard & Poor's 500 Index <.SPX> was down
22.04 points, or 1.70 percent, at 1,274.35. The Nasdaq
Composite Index <> was down 44.43 points, or 1.64 percent,
at 2,656.54.
The Japanese yen jumped against higher-yielding currencies
as investors sold riskier assets in response to slower Asian
economic growth. The yen, Swiss franc and U.S. dollar found
support from hedge funds and Japanese retail investors.
[]
Against the yen, the dollar <JPY=> was down 0.93 percent at
80.85 and the euro <EUR=> was down 0.19 percent at $1.3964.
"With the threat of a major nuclear disaster unfolding, the
Nikkei suffered its third-steepest drop in history," said
Camilla Sutton, senior strategist at Scotia Capital in Toronto.
"Foreign exchange markets are shedding risk, with the dollar,
Swiss franc and yen all gaining ground."
Oil prices dropped sharply, with North Sea Brent crude
sliding $3.07 to $110.60. Earlier, Brent crude fell below $108
a barrel for the first time in nearly three weeks.
[]
U.S. light sweet crude oil <CLc1> lost $2.49 to $98.70 a
barrel.
"This is a massive risk-off day today," said Christin
Tuxen, analyst at Danske Bank. "The risk averse sentiment is
coming through both in the equity market and euro/dollar. It's
weighing on oil even though fundamental drivers should suggest
an upside."
Government debt prices rallied, with German Bunds
outperforming other euro zone bonds, and yields on 10-year U.S.
Treasuries falling to a six-month low overnight.
Traders caught betting that prices would fall had to
quickly reverse their positions.
The benchmark 10-year U.S. Treasury note <US10YT=RR> shot
up 21/32 in price to yield 3.29 percent.
"The market will be very hesitant to set up new shorts
after a rally like this," said Christian Cooper, head of dollar
derivatives trading at Jefferies & Co. in New York.
U.S. stocks tumbled more than 2 percent early in the
session but later pared some losses. Shares seen as exposed to
the disaster and economically sensitive stocks fell sharply.
Spot gold prices <XAU=> fell $34.25 to $1,392.40 an ounce.
(Additional reporting by Jennifer Ablan, Edward Krudy and
Emily Flitter in New York; Nia Williams, Joanne Frearson,
Marius Zaharia in London; Writing by Herbert Lash; Editing by
Leslie Adler)
