Oil prices fell on expectations of slower demand from Japan, the world’s third largest economy and a major oil importer. Growing unrest in a Yemeni area limited the decline in oil prices.
Japanese stocks posted their biggest daily decline since October 2008 in record volume as traders considered economic losses. The Nikkei index closed off 6.2 percent and the broader TOPIX index slumped 7.5 percent.
The worst earthquake on record in Japan has triggered worries that global growth would suffer a setback just as the world economy is emerging from the effects of the financial crisis. Japan’s recovery costs could top $180 billion, or 3 percent of its annual economic output and more than 50 percent higher than the costs of the 1995 earthquake in Kobe, economists said.
“The earthquake could have great implications on the global economic front,” said Andre Bakhos, director of market analytics at Lek Securities in New York. “If you shut down Japan, there could be a global recession.”
Japanese gross domestic product may slide by 1 trillion yen in 2011, or about 0.2 percentage point, Hiromichi Shirakawa, a Tokyo-based economist at Credit Suisse, said in a client note. But deteriorating consumer confidence and production cuts could worsen the GDP drop as much as 1 percentage point, he added.
Before the disaster, Shirakawa estimated Japan growth would slow to 1.4 percent this fiscal year from 3 percent in 2010.
The US dollar rebounded from near-record lows against the yen after the Bank of Japan announced a series of policy easing measures to shore up the economy.
Gold rose, recovering some of last week’s losses, as the Japanese quake and heightened political unrest in the Middle East and North Africa drove safe-haven buying, driving prices toward recent record highs.
The MSCI world equity index slowed its fall in North American trading, but still traded down 0.84 percent to levels last seen in late January. It is down more than 4 percent from its February peak. The Thomson Reuters global stock index shed 1.1 percent.
Emerging market equities were lifted by construction and refinery shares on expectations of large-scale reconstruction efforts in Japan as the country confronted what officials there called its biggest crisis since World War Two.
The pan-European FTSEurofirst 300 index dropped 1.2 percent, while emerging markets stocks rose 0.8 percent.
The Dow Jones industrial average dropped 70.62 points, or 0.59 percent, to 11,973.78. The Standard & Poor’s 500 Index declined 9.28 points, or 0.71 percent, to 1,295.00 and the Nasdaq Composite Index fell 15.69 points, or 0.58 percent, to 2,699.92.
Among shares most affected were those in the nuclear industry after explosions and damage at Japanese nuclear plants created doubts about the prospects of the industry. A second hydrogen explosion rocked a stricken nuclear power plant in Japan, sending authorities scrambling to avert a meltdown.
General Electric Co which has combined nuclear ventures with Hitachi Ltd, fell 2.7 percent to $19.81.
Shares of luxury goods companies worldwide were also hit on worries about a drop in retail demand from Japan, which accounts for 11 percent of global luxury sales. Japan accounts for about 19 percent of sales for Hermes, 9 percent for LVMH, 16 percent for PPR’s Luxury Business Group, which owns Gucci and Yves Saint Laurent.
Tiffany shares fell 5.1 percent and Coach declined 5.5 percent. In Europe, LVMH slipped 3.1 percent, Hermes 3.1 percent, Richemont 2 percent, and PPR, 2.5 percent.
The iShares MSCI Japan index exchange-traded fund tumbled 7.3 percent, and the Global X Uranium ETF dropped more than 18 percent
Brent crude edged down 0.2 percent to $113.60 a barrel, pressured by expectations that oil demand in Japan, the world’s third-largest oil consumer, would fall as economic activity stalls following the quake. But conflicts in Libya and Yemen continued to be eyed by traders and offset the selling pressure.
In late New York trading, US crude oil was erasing losses. It rose 0.23 percent to $101.37 a barrel.
The dollar index, a gauge of the greenback against a basket of currencies, fell 0.58 percent. The euro was up 0.7 percent at $1.3999 after European Union policymakers surprised markets over the weekend by reaching significant agreements ahead of the March 24-25 heads of state meeting.
The Japanese yen declined 0.24 percent against the dollar to 81.69 yen. The dollar rebounded from a four-month low against the yen as the Bank of Japan supplied banks with record funds to stabilize the stricken economy.
Most US Treasury debt prices rose on Monday as investors looked for lower-risk assets while trying to gauge the eventual impact of the Japanese disaster and watching political turmoil in the Middle East and North Africa. Benchmark 10-year US Treasury yields plumbed their lowest levels since January, falling 0.05 percentage point to 3.35 percent.
Spot gold prices rose $8.71, or 0.61 percent, to $1,425.70 an ounce. (Additional reporting by Edward Krudy, Steven C. Johnson, Robert Gibbons and Phil Wahba in New York and Japanese markets reporters; Editing by Leslie Adler)
