U.S. markets plunge on fears of nuclear catastrophe in Japan

Washington Post Staff Writer
Wednesday, March 16, 2011; 5:09 PM

U.S. stocks dropped sharply into the red early Tuesday following a global sell-off on fears that what appeared to be a serious but contained nuclear accident in Japan is turning into a full-blown catastrophe.

Within minutes of the opening of the markets, the Dow Jones Industrial Average fell 2.27 percent as all 30 stocks that comprise the index dropped; the S&P was down 2.2 percent; and the Nasdaq dropped 2.66 percent. Stocks in several sectors, such as makers of parts for nuclear energy plants, were at their 2011 lows.

Gold tumbled over $40 on Tuesday and oil prices were plunging. Uranium and other nuclear power stocks were weaker. Among the only stocks rising were from companies that compete with nuclear energy businesses: solar stocks.

The New York Stock Exchange said it would invoke the so-called rule 48 to smooth volatility. This rule, which was approved by the Securities and Exchange Commission in 2007 but is rarely used, means that market makers will not have to disseminate prices ahead of opening.

Overnight in Japan, the benchmark Nikkei 225 stock average plummeted 10.6 percent to 8,605.15, after declining as much as 14 percent during the day. Tuesday's rout followed a 6 percent drop Monday. Those declines occurred despite an infusion of yen Monday and Tuesday by the Bank of Japan to try to prop up the nation's financial system.

Western financial markets had largely brushed off the impact of the disaster on Monday, with the Standard & Poor's 500 down a modest 0.6 percent. But on Tuesday, stocks were trading sharply lower in Europe and on Wall Street.

The devastation wrought by the earthquake in Japan has disrupted production of automobiles, computer chips and other goods and threatens the world's third-largest economy at a time when it was already vulnerable.

While the global economy is under threat from turmoil in the Middle East and financial troubles in Europe, the calamity in Japan creates another risk. The immediate response has been to temporarily shut down much of Japan's industrial production. Japanese power supplies could be strained for some time because of trouble at several nuclear plants. And the heavily indebted country will need to borrow more money to rebuild, potentially straining its finances.

"The timing couldn't be any worse," said Nicholas Szechenyi, a senior fellow at the Center for Strategic and International Studies. "Japan was just starting to have some positive economic numbers, and the international community is still adjusting to the impact of the financial crisis."

The area of Japan that suffered the most direct hit from the earthquake and tsunami accounts for a relatively small part of the nation's industrial output. But damage to infrastructure - roads, rail lines, electricity - is more widespread.

That disruption has compromised the ability of Japanese manufacturers to obtain supplies and electricity to continue producing and the ability of their employees to get to work. It is too soon to know how much world supply chains for key goods will be affected. Global businesses have worked around national disasters in the past, such as the Indian Ocean tsunami in 2004 and Hurricane Katrina in 2005.

Many auto plants across Japan have shut down, at least temporarily, wrote auto analyst Paul Newton of IHS Global Insight, who described the situation as fluid. Some of the shutdowns are due to rolling blackouts and disruptions to "the country's transport infrastructure, affecting everything from parts delivery, personnel mobility, and shipping activity at the country's ports."

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