Markets hit by sharp falls after Tokyo dive

Global markets faced losses as Japanese stocks had its worst two day declines since 1987 even after the country's central bank pumped 8 trillion yen after yesterday's record cash injection. Asian and Gulf markets also declined.

Global markets dropped sharply yesterday after the Tokyo Stock Exchange posted its worst two-day plunge in 24 years.

The Tokyo exchange fell despite the Bank of Japan pumping an additional ¥8 trillion (Dh361.13 billion) into the banking system in the hope of bolstering the country's weakened economy after the earthquake, tsunami and nuclear reactor problems.

The wider Topix Index, which closed 9.4 per cent lower, has plunged 16 per cent over the past two days, the most since the October 1987 stock market crash. Almost US$700bn (Dh2.57tn) was wiped from the market value of Japanese equities in the past two days.

"The news of the nuclear plant has dominated the markets, and the situation is changing and getting worse," said Masaaki Kanno, the chief economist at Morgan Stanley in Tokyo. On Monday, "I thought at least that worst event could be avoided and be put under control. However it is clearly escalating," he said.

Most regional bourses posted losses yesterday as investors reacted not only to events in Japan but also to the unrest in Bahrain.

The Saudi Tadawul All-Share Indexdeclined furthest, falling 3.5 per cent.

"With all of these combined effects, you don't have any positive outlook for any market in the world right now," said Marwan Shurrab, the chief trader at Gulfmena Alternative Investments in Dubai.

The repercussions from Friday's earthquake were felt on other Asian markets yesterday more than on Monday.

Hong Kong's Hang Seng Index lost 2.8 per cent to close at 22,678.25, while the Shanghai Composite Index lost 1.4 per cent to close at 2,896.26.

There is some risk that the supply of goods from Japan might be reduced, as the country manufactures machine parts used in electronic equipment and vehicles, Mr Kanno said.

"While some parts can be easily replaced by production from other countries such as Korea and Taiwan, others are exclusive to Japan, which would affect production of goods in neighbouring countries and weigh on their economies," he said.

Two blasts and and a fire occurred at one of Tokyo Electric Power's reactor units yesterday, when cooling systems damaged by the earthquake failed. Tokyo Electric, the region's biggest power generator, lost 24.6 per cent of its share value. Toshiba, whose products include nuclear reactors, was down 19.4 per cent.

The Japanese yen strengthened on speculation that domestic investors would bring home overseas assets.

Regional currencies, however, declined against the US dollar. The Korean won hit its lowest point this year and the Australian dollar tumbled to a six-week low.

"When one market falls [by] this magnitude, you think of the contagion of risk aversion in neighbouring markets," said Yuki Sakasai, the currency strategist at Barclays Bank in Tokyo.

Commodities also retreated across the board, led by oil, which dipped below $112 a barrel. Brent crude for April delivery fell $1.87 to $111.80 a barrel.

* additional reporting by Gregor Stuart Hunter