* Yen hits record high vs U.S. dollar
* US stocks slide, S&P 500 and Nasdaq down for 2011
* U.S. Treasury bonds rally as investors flee risky assets
* Oil gains on Middle East turmoil
(Updates with U.S. market close, Nikkei futures, adds
comment)
By Daniel Bases
NEW YORK, March 16 (Reuters) - The Japanese yen surged to a
record high against the U.S. dollar on Wednesday, while two
broad U.S. stock indexes erased their gains for the year as the
appetite for risk evaporated in volatile trade on rising fears
that Japan's nuclear crisis will slow the global economy.
The Standard & Poor's 500 and the Nasdaq turned negative
for 2011. The Dow Jones industrial average fell 2.04 percent,
but clung to a modest gain for the year.
Volatility in the market has surged on speculation that
damage to nuclear reactors in Japan remain uncontained.
Phil Flynn, senior market analyst with PFG Best in Chicago,
said markets were trading "headline to headline, so I'm telling
people not to overcommit to markets at this time."
The yen reached 77.60 per U.S. dollar on the EBS trading
platform <JPY=EBS>, blowing through the April 1995 record of
79.75. Speculation that Japanese insurers will have to
repatriate yen home to pay for claims was viewed as the main
reason for the move.
Traders are nervously watching whether the Bank of Japan
will intervene in the currency market to stem the yen's gains.
A stronger currency makes Japanese exports less competitive and
hurts the economy.
Heading into Thursday's Tokyo trading session, June Nikkei
stock futures pointed to a weak open, with contracts traded in
Chicago down 80 points at 8,450 <0#NK>.
The chairman of the U.S. Nuclear Regulatory Commission on
Wednesday told Congress that the agency would recommend an
evacuation area larger than that already in place, also noting
that radiation levels are "extremely high."
U.S. Treasury bonds' prices surged as investors snapped up
government debt in their flight to safety for a third straight
day, driving prices up nearly a full point or more and pushing
yields down to fresh three-month lows.
Crude oil prices rose steadily on the escalating violence
in the Middle East, giving investors another reason to sell
riskier equities. Spot gold advanced.
"We are so fixated here on Japan, and this intraday
volatility is without question here to stay as we are all
quickly learning what nuclear power is. You can throw
everything else out the window," said Ryan Detrick, senior
technical strategist at Schaeffer's Investment Research in
Cincinnati, Ohio.
The Dow <> lost 242.12 points, or 2.04 percent, to
close at 11,613.30. The Standard & Poor's 500 <.SPX> fell 24.99
points, or 1.95 percent, to finish at 1,256.88. The Nasdaq
<> dropped 50.51 points, or 1.89 percent, to close at
2,616.82.
For the year, the Dow is still up 0.31 percent. But the S&P
500 is down 0.06 percent and the Nasdaq is off 1.36 percent.
"Based on the events now, it isn't impossible that the VIX
could get up to where it was at the height of the (financial)
crisis. It could triple," said PFG's Flynn.
The CBOE Volatility Index or VIX <.VIX>, Wall Street's
favorite measure of investor fear, rose 20.89 percent to close
at 29.40, its highest level since July 6. In the last two days,
the VIX is up nearly 40 percent.
U.S. and European markets also weakened after the U.S.
government said its Producer Price Index surged at its fastest
pace in more than 1-1/2 years in February. []
MSCI's all-country world stock index <.MIWD00000PUS> fell
0.75 percent. Over the past three sessions, the index is down
3.79 percent.
Following a near 20 percent, two-session dive in Japan's
Nikkei average <>, the market rose 5.7 percent on
Wednesday, driving a recovery in Asia. The Nikkei, however, is
down more than 11 percent for the year.
The Eurofirst 300 Index <> dropped 1.6 percent,
extending losses to a sixth straight day. Banks' shares led
decliners after the Moody's downgrade of Portuguese debt.
[]
TREASURY DEBT PRICES, GOLD AND OIL GAIN
Benchmark U.S. 10-year Treasury note yields declined to
3.19 percent, after earlier hitting a three-month low of 3.14
percent.
Investors pushed the 10-year Treasury note's <US10YT=RR>
price up 30/32 of a point.
Gold prices rebounded after two days of decline. Some focus
in the precious metals market shifted back to loose monetary
policies and geopolitical tensions, moving away from the
nuclear crisis.
Bullion was underpinned by a European Central Bank
policymaker's comment that suggested the ECB could possibly
delay an April interest-rate hike, and after the downgrade of
Portugal by Moody's.
"Now that the dust has settled a little bit and we've had
particularly a recovery in energy and other commodities, that's
given a tailwind to gold," HSBC analyst James Steel said. "If
the focus ceases to be entirely on Japan, and the Middle East
again gets some headlines, then the geopolitical risk levels
will come back in and support gold."
Spot gold prices <XAU=> rose $4.50, or 0.32 percent, to
$1,398.40 an ounce.
Brent crude for May rose $2.01 to settle at $110.60 a
barrel.
Concerns about the unrest in Bahrain -- where troops from
OPEC kingpin Saudi Arabia have intervened -- as well as
intensifying clashes in the streets of Yemen, Syria and
Algeria, overpowered the risk aversion caused by Japan's
crisis. [] [] []
"The increasing unrest in Bahrain -- and the interest taken
by Saudi Arabia in trying to resolve it -- must not be
overlooked as a risk driver," said J.P. Morgan analyst Lawrence
Eagles in New York.
(Reporting by Daniel Bases and Al Yoon; Editing by Jan
Paschal)
