WSJ: GLOBAL MARKETS: European Stocks Slide; Euro Weakens Further
-- European stocks sharply lower
-- Euro, sterling and Australian dollar weaker too
-- Bunds, yen and Swiss franc firm
-- Oil and gold prices tumble
By Andrea Tryphonides & Michele Maatouk
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--European stocks slumped Tuesday and the major stock market indexes neared key technical support levels as autos and basic resources stocks led the declines following a third explosion at a nuclear plant in Japan that intensified fears of a nuclear disaster.
"Flight-to-quality moves are now accelerating in financial markets," said BNP Paribas.
"Over the near term, equity prices will plunge and bonds will rally, since it is currently difficult to estimate the overall damage of the disaster and the fiscal burden of reconstruction."
Meanwhile, the European single currency, which often falls in times of political or economic turmoil, was lower against a basket of currencies while safe-haven assets such as the Swiss franc and German bunds were higher.
The euro's decline accelerated after a disappointing German ZEW survey. The survey decreased to 14.1 points in March from 15.7 in February. Hawkish comments by the European Central Bank president Jean-Claude Trichet on interest rates and the earthquake in Japan all undermined analysts' moods.
By 1200 GMT, the Stoxx Europe 600 index was down 3.2% at 263.67. It hit an intraday low of 262.13, its lowest level since Nov. 30 2010. London's FTSE 100 index was down 2.5% at 5630.95, Frankfurt's DAX fell 4.4% to 6565.85, and Paris's CAC-40 was 3.8% lower at 3728.67.
The sombre mood was reflected in U.S. stock index futures, with the Dow Jones Industrial Average June futures contract down 2.2% at 11,669 and the corresponding S&P 500 contract 2.5% lower at 1258.10.
News of another explosion at the Fukushima Daiichi nuclear power plant was compounded by Japanese prime minister Naoto Kan, who said there's a high risk of elevated levels of radiation from the country's nuclear reactors, and urged everyone within 30 kilometers of the plant to stay indoors.
Despite the panicky reaction to events, some analysts remained bullish about the prospects for Japanese equities while Credit Suisse was also upbeat in its assessment of Japanese equities.
"Friday's tragic events do not alter our view that investors should be overweight of Japan. Crucially, we believe Japanese equities are unlikely to follow their 21% fall (22% relative underperformance) seen in the five months after the Kobe earthquake in 1995," Credit Suisse said in an equity strategy note.
Among individual sectors in Europe, autos and parts suffered the brunt of the selling, with the Stoxx Europe 600 index for the sector down 4.3% at 308.36. The equivalent basic resources index was 4.2% lower at 547.75.
In Asia, stock markets tumbled Tuesday, dragged down by a sharp drop in Tokyo's headline stock-market index amid widespread worries about the possibility of a Japanese nuclear catastrophe.
Japan's Nikkei Stock Average ended down 10.5%, Australia's S&P/ASX 200 fell 2.1% and South Korea's Kospi Composite closed down 2.4%. The Shanghai Composite Index fell 1.4% and Hong Kong's Hang Seng Index dropped 2.9%.
In the European foreign exchanges, the euro dropped as low as $1.3855. At 1205 GMT, it was trading at $1.3887, down from $1.3993 late Monday in New York.
Meanwhile, the yen gained against the dollar as investors looked to safe-haven currencies, despite the precarious situation in Japan. The dollar traded at Y81.25, down from Y81.63. Elsewhere, the Swiss franc was firm; the Australian dollar weak.
Among commodities, spot gold was at $1394.20 per troy ounce, down $31.55 from New York, while April Nymex crude oil futures were down $3.47 at $97.72 per barrel.
Although Japan inevitably dominated investors' thoughts, the unrest in Libya and the Middle East remains a concern too. The cost of insuring Bahrain's sovereign debt using credit default swaps surged Tuesday after Saudi troops entered the country at the invitation of the royal family. According to Markit, Bahrain's five-year credit default swap spread widened 24 basis points to a record level of 333 basis points.
In the bond markets, the June bund futures contract was up 1.20 at 123.39, widening the yield spreads between bunds and 'peripheral' euro-zone sovereign bonds.
Turning to the day's economic agenda, the U.S. Empire State manufacturing survey is due at 1230 GMT along with the import price index. The focus will likely be on the Federal Open Market Committee rate decision, due after the close of European markets at 1815 GMT. All eyes will be on Federal Reserve chairman Ben Bernanke's speech.
Commerzbank said: "Given the greater uncertainty of the economic outlook and the very low core inflation rate, we believe the Federal Reserve is hardly likely to steer a new course of monetary policy. Unimpressed by the ECB turning hawkish, the Fed should uphold its pledge to keep rates low."
