Panic over Japan triggers market turmoil

World markets suffered a dramatic series of losses yesterday, with fears of a potential nuclear disaster in Japan hitting stock, metal and oil prices.

In London, the FTSE 100 index of leading shares dropped by more than 3 per cent in early trading before recovering during the afternoon to end the day at 5,695.28, down 1.4 per cent.

The sell-off was almost all encompassing, with only a handful of blue chips managing to avoid losses. On the other side of the Atlantic, the Dow Jones Industrial Average and the Nasdaq index were in negative territory, with the latest pullback pushing the latter into a loss for the year.

Both indices were trading down about 1.5 per cent as the session in London came to a close. Earlier, the New York Stock Exchange invoked rules to smooth trading as pre-market indicators pointed to volatility.

Western markets took their cue from Japan's benchmark Nikkei 225 index, which loss nearly 11 per cent of its value as local traders kept a nervous eye on efforts to bring the quake-hit Fukushima Daiichi nuclear plant under control. The Nikkei is down more than 20 per cent since the devastating earthquake and tsunami struck Japan on Friday.

The tragic events wiped out entire towns on the country's eastern coast and damaged nuclear facilities. Kathleen Brooks, a research director at the online trading firm Gain Capital, summed up the mood by saying: "There is only one thought on the markets' minds and that is Japan."

General Electric was among the hardest hit in the US, losing more than 3 per cent of its value in afternoon trading. GE, whose technology is in use at the Fukushima plant, has shed more than $10bn (£6.2bn) in market value since the close on Friday amid fears that it may lose billions of dollars worth of potential sales as the disaster weighs on the prospects for the nuclear industry.

The fears extended beyond equities. Oil prices, which until last week had been rising in response to the turmoil in the Middle East and North Africa, tumbled sharply. Brent crude for April delivery slipped as low as $107.88 per barrel – well below the highs of around $120 seen during the early days of the battles between rebels and forces loyal to Muammar Gaddafi in Libya.

US crude for April delivery was even lower, sliding to under $97 per at one point. Metals were also hit amid concern over the impact of the Japanese crisis on industrial demand. Copper – a key industrial commodity – struck a three-month low of below $9,000 per ton in the afternoon as investors fled risky assets.

In soft commodities, raw sugar futures for May fell by nearly 7 per cent. The fears were such that even gold, the traditional safe haven for investors seeking to preserve their wealth during times of crisis, fell by as much as 3 per cent to a low of about $1,380 per ounce.

Though odd at first glance, analysts said the decline in gold prices could be explained by the broad-based losses in equities and other commodities. "Investors sometimes have little choice but to sell the yellow metal to cover margin calls elsewhere," Edel Tully, a strategist at UBS, said.

The Japanese crisis also triggered uncertainty regarding the prospect of interest-rate rises in the eurozone. Markets had been eyeing a hike next month, but the troubles in Japan prompted speculation that the European Central Bank may hold fire. "If there is a nuclear meltdown in the coming days then the global recovery would be put at threat, making a rate hike in Europe less likely," Ms Brooks said. "But we haven't got there yet, and right now the situation in Japan, and thus the impact on global growth, is extremely changeable."