Nuclear crisis rocks markets

WASHINGTON - The worsening nuclear crisis in Japan is triggering a near-collapse in that nation's financial markets and major losses in markets around the globe.

The Nikkei index of Japanese stocks fell 10.5 percent on Tuesday and is down 17.5 percent in the three trading days since the catastrophic earthquake in northern Japan. That is the equivalent of a 2,000-point drop in the Dow Jones industrial average, and the trading week began with the steepest two-day decline since the 1987 stock market crash. The steep fall has come despite two days of vast infusions of yen into the financial system by the Bank of Japan.

The damage has spread to markets around the world, with the Standard & Poor’s 500 down about 1.1 percent at the end of Tuesday and money gushing into U.S. Treasury bonds as global investors seek a safe haven. Financial markets were pricing in a higher degree of risk in developing nations, particularly major trade partners of Japan such as South Korea, China and Indonesia.

Prices for oil and other commodities are also falling, with a barrel of crude oil down $4.14 to $98.56 since the earthquake. That drop is linked to concerns that global demand for fuel will decrease amid Japan’s troubles, though the likely shutdown of Japanese nuclear power plants could actually increase the nation’s demand for fossil fuels.

The palpitations across world markets reflect a growing realization that the threat of meltdowns at Japanese nuclear plants remains high and that the damage is severe enough to risk ripple effects across the globe..

Mark Luschini, chief investment strategist at Janney Montgomery Scott, said he believes the drop in the markets is caused by panic selling as investors ponder the worst-case scenario: “The radiation impacts some place with a dense population like Tokyo” or elsewhere in the world. “At that point all bets are off,” Luschini said. Traders, he said, are acting like “armchair nuclear physicists.”

The severity of the damage for the Japanese economy is becoming more apparent by the day: Vast swaths of the nation’s industrial capacity are shut down temporarily, even outside of the areas directly hit by the earthquake. A large portion of the nation’s electrical supply – 10 percent, by some estimates – is likely lost for the foreseeable future, as analysts do not expect some of the nuclear to resume normal operation for years, if ever. It could take months to get alternate power supplies fully up and running.

Economists at Bank of America-Merrill Lynch estimate that the disaster will reduce Japanese economic activity by half a percent this year, but will increase next year.