Japanese quake hits stocks, oil but yen holds on

[March 12, 2011]  LONDON (AP) -- A major earthquake in northeastern Japan hit world stocks and oil prices on Friday, but the yen proved resilient to one of the bigger tremors the country has suffered in recent times.

The quake, which struck towards the end of the Asian trading session, prompted a renewed bout of selling in stock markets, with insurers hit badly, and a knee-jerk sell-off in the yen. However, the Japanese currency recovered somewhat, thanks to its status as a safe haven for international traders.

With tsunami alerts in place all round the Pacific Rim, from Australia all the way up to the West Coast of the U.S., investors are clearly on edge over the potential fallout.

"At this point we would assume that there will be no major economic repercussions from this earthquake although we will have to watch how events unfold over the coming hours," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ. "Of course the initial uncertainty that could prompt risk aversion may in fact help lift the yen in the short-term."

By early afternoon London time, the dollar was trading 0.8 percent lower at 82.29 yen, having risen as high as 83.29 yen in the immediate aftermath of the quake.

Japanese stocks, though, were hit hard and the benchmark Nikkei 225 index closed down 1.7 percent at 10,254.43.

Losses were posted all round Asia and in early trading in Europe. The FTSE 100 index of leading British shares was down 0.5 percent at 5,815 while France's CAC-40 fell 1 percent to 3,926. Germany's DAX was 1.1 percent lower at 6,988.

Insurers took a pounding across Europe amid fears of huge exposure to Japan.

"It's pretty early days to establish any early figures but clearly when these events take place, the initial response is to knock the insurers," said Jeremy Batstone-Carr, director of private client research at Charles Stanley stockbrokers in London.

Among the fallers were Swiss Re and Munich Re. Both were trading nearly 6 percent lower.

Wall Street was also poised for further losses following Thursday's big declines -- Dow futures were down 58 points at 11,862 while the broader Standard & Poor's 500 futures fell 5.8 points at 1,283.60.

While the focus over the rest of the day will likely remain on the Pacific, investors will also keep an eye on a meeting of the leaders of the euro countries in Brussels and the ongoing battle for control of Libya.

"Risk aversion is back on the agenda as a confluence of economic, debt and geopolitical risks collide to weigh on sentiment," said Neil MacKinnon, global macro strategist at VTB Capital.

The purpose of the meeting in Brussels is to discuss how to deal with Europe's debt crisis, which has shown signs of flaring up again in recent days, after Moody's downgraded the credit ratings of both Greece and Spain and Portugal's borrowing costs have spiked up to euro-era highs.

Though nothing dramatic is expected to be pronounced ahead of a March 25 summit, investors will be keeping a close watch on how negotiations progress -- signs of discord over the future of the bailout fund or easing the rescue terms for Greece and Ireland would likely hurt the euro.

Meanwhile, developments in Libya kept markets on edge despite modest oil price declines.

Though the regime of longtime leader Moammar Gadhafi appears to be recapturing ground lost to rebels, oil supplies remain blocked and investors worry the crisis will spread in the Arab world.

The main impact has been to send oil prices to their highest levels for around two and a half years. By early afternoon London time, the benchmark oil contract on the New York Mercantile Exchange was down $3.03 at $99.66 a barrel, while Brent crude in London fell the same amount to $112.53.

Elsewhere in Asia, South Korea's Kospi fell 1.3 percent to 1,955.54 and Australia's S&P/ASX 200 was down 1.2 percent at 4,644.80. Hong Kong's Hang Seng index shed 1.6 percent to 23,249.78.

Mainland Chinese shares fell too. The Shanghai Composite Index lost 0.8 percent to 2,933.80, while the Shenzhen Composite Index of China's smaller, second exchange lost 0.2 percent to 1,299.69.

Figures showing that China's inflation rate remained at 4.9 percent in February, above the government's 4 percent target, also cast a pall on the market, did nothing to help sentiment.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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