* Equity markets tumble as radiation fears cause rout
* Yen rises on risk aversion as oil slides further
* Government debt rallies as haven from risk
(Updates with U.S. close)
By Herbert Lash
NEW YORK, March 15 (Reuters) - An escalating nuclear crisis
in Japan spread fear across financial markets on Tuesday that
wiped out about $625 billion in value in stocks and drove
investors to the safety of government debt.
Gold fell as much as 3 percent at one point as the
worldwide equity selloff forced speculators to sell bullion to
cover equity losses. It recovered some losses, however.
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. []
An explosion at a crippled reactor at the Fukushima plant
led to radiation drifting into Tokyo where people fled while
others stocked 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.
"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 in euro zone interest rates.
Benchmark 10-year U.S. Treasury yields declined to their
lowest levels in three-months, though much was retraced in the
U.S. trading session. Tax-free U.S. municipal bonds, which
typically rally when stocks sell off, gained sharply.
Munis, a $2.9 trillion market largely sat out Monday's
worry-driven trade in Treasuries but gained on Tuesday.
[]
Investor angst ran high. The CBOE VIX volatility index
<.VIX> was up 15.1 percent.
Traders caught betting that prices would fall had to
quickly reverse their positions.
The 10-year U.S. Treasury note <US10YT=RR> shot up 18/32 in
price, pushing its yield down 0.07 percentage point to 3.30
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 137.74
points, or 1.15 percent, at 11,855.42. The Standard & Poor's
500 Index <.SPX> was down 14.52 points, or 1.12 percent, at
1,281.87. The Nasdaq Composite Index <> was down 33.64
points, or 1.25 percent, at 2,667.33.
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 1.09 percent at
80.72 yen and the euro <EUR=> was up 0.06 percent at $1.3998.
"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.
Oil prices dropped sharply, with North Sea Brent crude
sliding $5 to $108.67. [] U.S. light sweet crude
oil <CLc1> lost $3.68 to $97.51 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."
Spot gold prices <XAU=> fell $30.66 to $1,395.90 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 Kenneth Barry)
