* Equity markets tumble as radiation fears spark rout
* Yen rises on risk aversion as oil slides further
* Government debt rallies in safe-haven buying
(Updates prices)
By Herbert Lash
NEW YORK, March 15 (Reuters) - An escalating nuclear crisis
in Japan spread fear across financial markets on Tuesday,
sparking a rout in stocks that wiped out about $650 billion in
value and driving investors to 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 equity sell-off
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. But unrest in Bahrain and Libya helped
pull oil prices off lows. For details see: []
"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 closed at their lowest in 3-1/2 months, the
Nasdaq almost pared all its gains for 2011, and Japan's Nikkei
average sank 10.6 percent, marking its worse two-day sell-off
since 1987 after reports of rising radiation near Tokyo rattled
investors. []
A crippled reactor at the nuclear complex in Fukushima
exploded, prompting 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.
"It looks like the Japanese economy may be affected for a
longer period than was thought last week," said Gene McGillian,
an analyst at Tradition Energy in Stamford, Connecticut.
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.
MSCI's all-country world stock index <.MIWD00000PUS>, which
was valued at about $28.6 trillion on Monday, shred more $1
trillion when Wall Street opened. But losses were pared almost
in half as fears of widespread financial turmoil abated.
Government debt prices rallied, with German Bunds
outperforming other euro zone bonds. However, analysts said
gains may fade if slower global growth failed to derail an
expected rise euro zone interest rates.
Benchmark 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 gained 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. []
Investor angst ran high. The CBOE VIX volatility index
<.VIX>, also known as Wall Street's fear index, was up 12.7
percent.
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.
Wall Street recouped some losses.
The Dow Jones industrial average <> was down 122.31
points, or 1.02 percent, at 11,870.85. The Standard & Poor's
500 Index <.SPX> was down 12.11 points, or 0.93 percent, at
1,284.28. The Nasdaq Composite Index <> was down 28.81
points, or 1.07 percent, at 2,672.16.
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 0.87 percent at
80.82 and the euro <EUR=> was up 0.09 percent at $1.4002.
"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 $5.10 to $108.57. Earlier, Brent crude fell below $108
a barrel for the first time in nearly three weeks.
[]
U.S. light sweet crude oil <CLc1> lost $3.69 to $97.50 a
barrel.
"We have a risk-off trade going on as a result of the
issues in Japan," said James Steel, chief commodity analyst at
HSBC bank. "There has been institutional liquidation and other
liquidation globally as people are choosing to raise cash at
this moment."
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 13/32 in price to yield 3.32 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 dropped
sharply.
Spot gold prices <XAU=> fell $33.75 to $1,393.90 an ounce.
(Additional reporting by Jennifer Ablan, Ryan Vlastelica,
Robert Gibbons and Emily Flitter in New York; Nia Williams,
Joanne Frearson, Marius Zaharia in London; Writing by Herbert
Lash; Editing by Leslie Adler)
