TOKYO (Reuters) - Japan's Nikkei average has rebounded after the worst two-day selloff since the 1987 crash, with some investors scooping up shares even as many fretted that a further deterioration in nuclear crisis could undermine the market.

The Nikkei climbed nearly 6 per cent to 9093.72 points after having plunged 10.6 per cent on Tuesday, but was still down about 11 per cent from Friday's close.

Gains were mostly driven by hedge funds covering short positions taken in futures during the previous day's plunge, as well as some light buying by some household investors after the two-day plunge of more than 16 per cent, traders said.
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"The rebound is pretty strong as investors realised they may have panicked a bit too much yesterday," said Fujio Ando, senior managing director at Chibagin Asset Management.

Overall Japanese investors were still skittish after the sharp slide and reluctant to step in, fearing more bad news on the stricken nuclear reactor north of Tokyo could send shares into another tailspin.

"The market doesn't care about any fundamentals today. All eyes are on the nuclear plant and the Nikkei will move according to the news about the plant," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "The market is still extremely volatile."

JGB futures slid a half a point and 20-year yields jumped to a one-year high as bond dealers fretted that a long-term bond auction later in the day may have trouble finding buyers.

Japanese insurers were selling bonds on Tuesday to cover losses in their stock portfolios.

The yen dropped across the board, with the US dollar pushing up to 81.00 yen but still not far from a record low of 79.75 hit against the Japanese currency in 1995.

Market players were also still keeping an eye out for Japanese companies and insurers selling their hefty foreign asset holdings and repatriating funds to cover costs from the nuclear crisis, quake and tsunami, a factor that could drive the yen higher.

So far traders have not seen much fund repatriation, and some cited Japanese life insurers buying the higher-yielding Australian dollar. The Australian dollar jumped nearly 1 per cent against the yen.

The Bank of Japan was seen checking rates on currencies with banks in Tokyo, traders said, a warning it could intervene against any further yen strength that would deal another blow to the economy.

"It kind of makes you feel that they are ready to intervene if the dollar falls below 80 yen," said a trader at a Japanese bank.

Japan's finance minister told a meeting with a ruling party lawmaker that he was watching the currency market closely.

The situation at the Fukushima Daiichi nuclear plant 240 km north of Tokyo was still tense. A fire broke out on Wednesday at the plant and sent low levels of radiation wafting into Tokyo, prompting some people to flee the capital.

Some traders say Japanese banks have sold foreign assets to load up on cash in case of big customer withdrawals, while others said the efforts by the Bank of Japan to supply cheap funds reduces the need for repatriation.

Most traders felt it would take Japanese insurers weeks to assess their cash needs before deciding to sell any foreign assets.

Hedge funds were cited as aggressive sellers of Nikkei futures on Tuesday as the market panicked over reports of leaking radiation from the stricken Fukushima nuclear reactor and higher radiation readings near Tokyo, traders said.

Domestic fund managers have largely stuck to the sidelines, suggesting that they man need to sell into any rebound, traders said. Other fund managers struck a brave face about the crisis and prospects for Japan's biggest companies.

"Many Japanese companies are between 50 and 100 years old and they have been through many shocks and crises, but in their DNA they have ability to pick up the pieces and rebuild. They are competitive in the true meaning of this word. That's why our stance is to invest in such firms, despite of what has happened," said Tetsuro Ii, CEO of Commons Asset Management.

"We want to buy, but we need to have more information about the level of damage at different companies, so we will be gathering this information and invest very carefully," Ii said.

The two-day selloff wiped $626 billion in market capitalisation of the Tokyo Stock Exchange's first section of
major shares.

While investors felt the market had tumbled too far unless the crisis takes a much more serious turn for the worse, few were willing to step in just yet.

The Nikkei's 14-day relative strength index, a common technical indicator of whether a market is overbought or oversold, struck a very oversold level of 17 on Tuesday before rising to 27.4 on Wednesday. A reading below 30 suggests a market is oversold.

Laurence Balanco, a technical analyst at CLSA, said that the Nikkei's RSI had only fallen below 17 on eight occasions since 1970, and the market's average return after one week of doing so was 6.22 per cent.

Bonds lost more ground. Ten-year JGB futures were down 0.68 point to 139.60, while the 20-year yield climbed 5 basis points to 2.130 percent and struck a one-year high of 2.150 per cent.

Japan's Ministry of Finance will sell 1.1 trillion yen ($13.4 billion) of 20-year bonds later in the day.

Worries that Japan will have to issue more debt to pay for the cost of reconstruction have hit long-term Japanese bond yields and the spreads of Japanese sovereign credit default swaps.

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On Tuesday March 15, 2011, 3:19 am EDT | By Jungyoun Park and David Chance

SEOUL (Reuters) - Shares and other risky assets from the Australian dollar to commodities such as copper and oil slumped on Tuesday while safe-haven assets like U.S. Treasuries rallied as Japan's nuclear crisis worsened.

Rising radiation levels at an earthquake-hit nuclear plant in northeastern Japan triggered a huge selloff in Japanese shares and panic hoarding of food and other supplies in Tokyo.

At one stage, Nikkei futures were down 16 percent before paring losses to 10 percent, while the benchmark Tokyo stock index ended down almost 11 percent, its biggest one-day percentage loss since October 2008.

The Nikkei has lost around 17 percent of its value since a massive earthquake and tsunami struck the country on Friday, leading to explosions at several nuclear plants and forcing thousands of factories to shut.

"The downside is completely open-ended at the moment as headlines come through," said Roland Randall, a strategist at TD Securities in Singapore, adding that markets would react negatively until the nuclear threat is contained.

Stocks in the rest of Asia as measured by MSCI fell nearly 3 percent as the nuclear crisis worsened and the MSCI world index slid 1.2 percent.

European stock markets were expected to slide in early trade, while U.S. stock index futures fell 0.8 percent, pointing to more losses on Wall Street later in the day.

Australian shares fell 2.1 percent, with shares of uranium miners extending losses as some countries indicated they were rethinking plans for nuclear power in the wake of the Japan disaster.

"It is like pricing an unknown risk. The comments from Japan pushed the market off the edge," Shane Oliver, head of investment strategy at AMP Capital in Sydney said.

South Korea fell 2.4 percent, led by nuclear power plant designer KEPCO Engineering & Construction, which plunged 15 percent.

SAFE HAVEN RALLY FOR DOLLAR AND TREASURIES, AUSSIE PLUNGES

The dollar soared to just above 82.00 yen on trading platform EBS from near 81.40 before settling back to near 81.65 yen, little changed on the day and not far from a record low of 79.75 struck in 1995.

U.S. Treasuries rallied on the global flight to safe assets as risk aversion overpowered concerns that Japanese insurers would sell Treasuries to fund payouts at home, which would also boost the yen.

Yields on 10-year U.S. Treasuries fell further to 3.24 percent from 3.37 percent earlier in the day, although they were off the day's lows.

The U.S. Federal Reserve's policy-making Federal Open Markets Committee meets on Tuesday and although the Fed is seen exiting its stimulus earlier than Japan, few are expecting policy to change during this meeting.

Asian currencies took a battering, led by the Australian dollar which is often used as a proxy for global risk and dumped during times of stress.

The Australian dollar was the worst performing currency on Tuesday, falling more than 1.5 percent to a session low around $0.9925, a level last seen in January. It last traded at around $0.9949, with resistance seen at $1.0046 and support at $0.9884.

The New Zealand dollar was also under pressure, shedding more than one percent on the day to a six-month low of $0.7295, while the Thai baht was also hit.

Asian cash and credit default spreads gapped sharply higher, with South Korea, typically a volatile market that is prone to risk-aversion, seeing the biggest rise in spreads.

Korean spreads rose 16 basis points (bps) to 116bps/118bps, Thailand, the Philippines and Indonesia all gapped 12bps.

MARKET TURMOIL SPREADS TO OIL AND METALS

Commodity prices also slumped on reports of mounting radiation levels in parts of Japan and fears that prevailing winds could sweep radioactive material into Tokyo and other heavily populated areas.

Brent crude for April fell as much as 1.9 percent to 1.9 pct to $111.49 before recovering to $119.49.

Even gold, a traditional safe-haven investment, was hit. Spot gold almost one percent to $1,415.26 an ounce by 0615 GMT, after rising as much as 1 percent on Monday.

Three-month copper on the London Metal Exchange reversed early gains to edge down 1.3 percent at $9,080 a tonne.

"People are going for risk aversion, so investors are liquidating assets and positions including in crude oil and gold," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

BANK OF JAPAN SEEKS TO EASE PAIN

Euroyen futures edged higher and short-dated swap contracts dipped on Tuesday following the Bank of Japan's offered to pump 5 trillion yen ($61 billion) into the banking system after injecting a record 15 trillion yen in same-day market operations on Monday and eased monetary policy further by expanding its asset buying programme.

Ten-year Japanese government bond futures close on half a point to 140.28, on the way to testing the high for the year, helped by safety bids and following a rout in the stock market.

(Additional reporting by Chikafumi Hodo and Antoni Slodkowski in TOKYO, Vikram S Subhedar in HONG KONG, Clare Jim in TAIPEI, Cecile Lefort in SYDNEY; Editing by Richard Borsuk & Kim Coghill)

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Japan's Nikkei plunges 11 percent on radiation fears, sending global markets into a tailspin

LONDON (AP) -- Japan's stock market nose-dived nearly 11 percent, leading world markets sharply lower on Tuesday, as an escalating nuclear crisis threatened to compound the devastation from last week's earthquake and tsunami.

Investors took fright on the news that a radiation leak was detected at a crippled power plant and residents were warned to stay indoors. The benchmark Nikkei 225 stock average sank a staggering 10.6 percent -- more than 1,000 points -- to close at 8,605.15 after hitting a midday low of 8,227.63 points, more than 14 percent down.

Following on from Monday's 6 percent decline, the first trading day since the devastating earthquake and tsunami struck the northeastern coast, the Nikkei has now suffered its worst two-day trading losses for 40 years.

The chill was felt across all markets, with the yen boosted by Japanese investors repatriating funds as a precautionary measure against risk and to pay for reconstruction. Oil prices took another hit on fears over the impact on global consumption.

In early European trading, stocks took a battering, with German stocks the worst performing -- Germany has relatively big economic ties with Japan. The country's main DAX index was down 5.1 percent at 6,517, with many of the country's industrial giants like BMW AG, Volkswagen AG and Daimler AG trading down by even more.

France's CAC-40 slid 4.1 percent to 3,719, with leading nuclear reactor manufacturer Areva down more than 9 percent. Britain's FTSE 100 index fell 3 percent to 5,601.

The heavy selling is poised to continue at the Wall Street open, even though the Federal Reserve is expected later to sound cautiously optimistic about the U.S. recovery. Dow futures were down 250 points, or 2.1 percent, at 11,676 while the broader Standard & Poor's 500 futures slid 32.30 points, or 2.5 percent, to 1,258.10.

"Financial markets have been rattled by the growing risk posed by potential radiation leaks at the stricken nuclear power plants in Japan," said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

Investors felt the biggest shock waves when Japan's prime minister announced that radioactive material had leaked from the Fukushima Dai-ichi nuclear plant in Fukushima province and that more leaks were possible. People living within 19 miles (30 kilometers) of the complex were told to stay indoors.

The stock sell-off in Tokyo hit nearly every business sector, with electric companies under intense pressure again. The Tokyo Electric Power Co., which operates the crippled nuclear plant, crashed 24.7 percent. Toshiba Corp., a maker of nuclear power plants, wilted 19.5 percent.

Other companies with nuclear power-related businesses faced a second day of free-falling losses. Mitsubishi Heavy Industries tumbled 10.9 percent, Kobe Steel Ltd. dived 12.1 percent, and Hitachi Ltd. shed 12.6 percent. Cosmo Oil, whose refinery caught fire after the quake, slid by 9 percent.

Car makers declined partly because quake-stricken northeastern Japan is a major center for auto production, complete with a myriad of parts suppliers and a network of roads and ports for efficient distribution.

Toyota Motor Corp. said it would suspend manufacturing at its domestic plants through Wednesday -- a production loss of 40,000 cars. Other manufacturers like Sony Corp. and Honda Motor Co. were also forced to halt production. Damage to roads and distribution systems made it all but impossible to move products.

Toyota, the world's largest automaker, fell 7.4 percent. Honda lost 3.9 percent and Nissan Motor Corp. dropped 3.3 percent. Mitsubishi Motors Corp. lost 9.3 percent and truck-maker Isuzu Motors Ltd. plunged 9.2 percent.

other Asian markets could not withstand the tide of negative sentiment. South Korea's Kospi lost 2.4 percent to 1,923.92 and Australia's S&P/ASX 200 fell 2.1 percent to 4,528.70. Hong Kong's Hang Seng index dropped 2.9 percent to 22,678.25.

In mainland China, the Shanghai Composite Index fell 1.4 percent to 2896.26, and the Shenzhen Composite Index of China's second, smaller exchange lost 1.3 percent to 1,293.61.

Oil prices dropped sharply despite ongoing tensions in the Middle East, with the regime of longtime Libyan leader Moammar Gadhafi recapturing lost ground from rebels and Saudi Arabian troops entering Bahrain to help out the embattled rulers.

By mid morning London time, a barrel of crude as traded on the New York Mercantile Exchange was down $1.92 at $99.27 while the equivalent Brent rate in London was $2.02 lower at $111.65.

In currency markets, the yen was a big gainer, partly through its capacity as a safe haven asset. A major natural disaster like an earthquake can also bolster the yen because investors expect the Japanese public and insurance companies to buy back their home currency in order to fund reconstruction, increasing demand for the yen.

By mid-morning London time, the dollar was 0.3 percent lower on the day at 81.46 yen, while the euro was down 1 percent at 113.17 yen. The euro was 0.8 percent lower at $1.3866 as the European currency loses its shine in times of risk aversion.

The appreciating yen is an additional worry for Japanese policymakers as it has the potential to price already-vulnerable exporters out of the international marketplace. Though the Bank of Japan has pumped in colossal amounts of money into the money markets over the past couple of days to support liquidity, analysts said it may be tempted to buy up dollars to rein in the export-sapping rise in the currency.

"The last thing Japan needs now is a strong yen which would hamper the exports it needs to try and rebuild what is already a highly indebted public sector economy," said Michael Hewson, market analyst at CMC Markets.

Pamela Sampson in Bangkok contributed to this report.

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Japan's Nikkei plunges on first trading day after quake; European stocks supported by EU deal

LONDON (AP) -- The Tokyo stock market plunged Monday, its first business day after an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast, killing thousands and potentially causing tens of billions of dollars in damage.

Developments elsewhere were more muted -- an indication that investors think the costs facing Japan may not spill over significantly. In Europe, sentiment was partly supported by the weekend agreement of a broad package of measures to ease the government debt crisis that has already forced Greece and Ireland into seeking bailouts.

However, most attention was centered on Japan, and how the world's third-largest economy is dealing with the catastrophic events of last Friday. Financially, the situation is made even more difficult by the fact that Japan's debt stands at around 200 percent of its national income and its economic recovery came to a grinding halt in the last three months of 2010.

The Bank of Japan was quick off the mark Monday, injecting a record 15 trillion yen ($183.8 billion) into money markets to try to defend the already fragile economy. By flooding the banking system with cash, the central bank hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.

"It was certainly an emotion charged-day on Asian equities with breaking news circulating seemingly every few minutes ranging from record liquidity injections from the BoJ to further catastrophes at other nuclear reactors," said Chris Weston, a trader at IG Markets. "The end result was panic and indiscriminate selling."

In one of the most dizzying days for Japan's stock market since the 2008 financial crisis, the benchmark Nikkei 225 dived 633.94 points, or 6.2 percent, to close at 9,620.49 -- wiping out this year's gains and hitting its lowest level in four months.

Worries about the economic impact of Friday's disaster, including massive power shortages that could disrupt factories, triggered a broad sell-off that hit all sectors.

Tokyo Electric Power Co. nose-dived more than 23 percent as it struggled with malfunctioning nuclear reactors and a power shortage that led the company to warn it may need to ration electricity. And companies with nuclear power-related businesses registered staggering losses, including Hitachi Ltd., down 16.2 percent, and Toshiba Corp., down 16.3 percent.

Car makers declined, too, partly because quake-stricken northeastern Japan is a major center for auto production, complete with a myriad of parts suppliers and a network of roads and ports for efficient distribution. Major vehicle manufactures have halted production around the country. Toyota Motor Corp., the world's largest automaker, fell 7.9 percent, Honda lost 6.5 percent, and Nissan dropped 9.5 percent. Mitsubishi Motors Corp. lost 11.8 percent and Isuzu Motors Ltd. plummeted 9.2 percent.

Insurance companies -- many of which will likely face heavy claims for lost property and infrastructure -- also suffered sharp drops, including Tokio Marine Holdings Inc., down 12.4 percent. Cosmo Oil, whose refinery has been on fire since the 8.9-magnitude quake, slid by a withering 21.6 percent.

While Japanese shares sunk, the yen struck a new four-month high against the dollar thanks to its status as a safe haven for investors to park their cash. However, the Bank of Japan's announcement took the shine off during a day of volatile trading.

By mid-morning London time, the dollar was 0.6 percent higher on the day at 81.98 yen. Earlier the dollar had tumbled to a four-month low of 80.60 yen, not far above its post World War 2 low of 79.75 yen.

"The initial positive yen reaction likely reflects both a pick up in safe haven demand for the yen as broader market risk sentiment has deteriorated, and investors anticipating a pick up in quake-related yen supportive capital inflows," said Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ.

Meanwhile, the euro was 0.2 percent firmer at $1.3966, its fortunes bolstered somewhat by a surprisingly broad European package of measures to deal with the government debt crisis that has over the past year threatened the existence of the euro currency.

In an early Saturday announcement, eurozone leaders increased the size of the bailout fund -- the so-called European Financial Stability Facility -- and lowered the interest rates on the loans bailed-out Greece has taken out. They also revealed that the bailout fund can buy bonds directly from governments in exceptional circumstances but only if those countries agree to further austerity measures.

The deal helped support European stock markets despite the worries over Japan.

Stock indexes in Greece, Portugal and Spain rallied sharply. The FTSE 100 index of leading British shares was more or less unchanged at 5,827 while France's CAC-40 fell 0.2 percent to 3,922. German shares underperformed their peers partly because Germany is the country has the deepest coffers in Europe and will have to pay the lion's share of the revamped bailout facility. The DAX index was down 0.6 percent at 6,940.

Wall Street was poised for a modest retreat at the open -- Dow futures were down 43 points at 11,960 while the broader Standard & Poor's 500 futures fell 4.6 points to 1,296.90.

Elsewhere in Asia, China's main stock market, the Shanghai Composite Index, rose 0.1 percent at 2,937.63 and the Shenzhen Composite Index of China's smaller, second exchange gained 0.9 percent to 1,310.99.

Hong Kong's Hang Seng gained 0.4 percent to 23,345.88 and South Korea's Kospi gained 0.8 percent to 1,971.23.

Meanwhile, oil prices fell amid the uncertainty generated by the Japanese quake despite ongoing worries about how the crisis in Libya will pan out. Benchmark crude for April delivery was down $1.99 at $98.18 a barrel in electronic trading on the New York Mercantile Exchange.

Sampson contributed from Bangkok.

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