U.S. futures down, world markets flat after Japanese stocks plummet

A man reacts while looking at a stock price board in Tokyo Monday, March 14, 2011 as the Tokyo stock market plunged on its first business day after an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast.
A man reacts while looking at a stock price board in Tokyo Monday, March 14, 2011 as the Tokyo stock market plunged on its first business day after an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast. (AP)

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By Howard Schneider
Monday, March 14, 2011; 10:17 AM

Japanese stock markets fell more than six percent Monday as the country's manufacturers shuttered plants to assess damage and deal with power shortages, and the nation wrestled with the impact of not only a natural disaster but lingering concerns about nuclear safety.

The Nikkei index of major Tokyo Stock Exchange companies fell sharply in the first full day since the earthquake and tsunami struck Friday.

Worldwide, markets showed a measured response. In the United States, early trading showed the Dow Jones industrial average down 0.5 percent; Standard & Poor's down 0.5 percent; and the Nasdaq composite down 0.3 percent.

Morning trading in Europe showed a modest drop. In Asian markets outside of Japan, there were small gains in China, Hong Kong and South Korea, but drops in Taiwan, Singapore and Australia.

Analysts around the world will be watching closely to see how this new round of economic uncertainty is received by markets balancing a U.S. economic recovery with rising oil prices and other emerging risks. They warned that extended power disruptions or larger-than-expected damage to manufacturers could undercut a global economic recovery that was beginning to gain momentum. The crisis will challenge Japan's financial system and energy infrastructure, as well as its capacity for dealing with a humanitarian disaster.

The first working day since the quake struck dawned to rolling blackouts and hoarding, despite the Bank of Japan's vow to keep the economy--the third-largest in the world--on track. The central bank announced Monday that it will put a record $183.8 billion into the economy to keep the country's financial system stable and its trading system functioning.

The insured property losses from the quake could amount to between $14 billion and $35 billion, according to Air Worldwide, a risk consulting company.

Japan is already groaning under government debt equal to twice its yearly economic output, proportionally the world's largest load. But analysts said the country should have the financial muscle to deal with the reconstruction.

"Japan has the immediate fiscal space to respond to this tragedy," said Mohamed El-Erian, chief executive officer of investment fund Pimco.

Although the cost of reconstruction may prove challenging. But analysts said Japan retains enough room to borrow what it will need to bounce back from the devastation without, for example, using nontraditional methods such as spending down its trillion-dollar stockpile of international currency reserves. Money is likely to also flow from Japanese investments overseas back to the country, a phenomenon that may have been behind the jump in the value of the yen Friday after the disaster.

The Tokyo exchange was open only half an hour longer after the earthquake struck but in those closing minutes dropped 1.7 percent. The weekend's events are likely to shape trading worldwide amid expectations that problems at Japan's nuclear facilities may prompt countries to rethink the use of nuclear power and boost demand - and prices - for oil and other fuels.

The country has lost about 6,800 megawatts of power-generating capacity after nuclear plants were damaged, perhaps 7 percent or more of its total supply, analysts with Barclays Capital said in a research note. But the effect on industry and economic activity won't be clear until it is known how long the plants will be off line, how the lost power can be replaced, and whether potential radiation leaks at the nuclear facilities have been contained.


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