Oil prices slumped to near $108 a barrel Tuesday in Asia, extending losses from the previous session ahead of key reports on the impact of rising fuel costs on global crude demand.
Tokyo’s Nikkei 225 index fell 1.9 percent to 9,539.22 in early afternoon trade. Elsewhere, Hong Kong’s Hang Seng index was 1.3 percent lower to 23,980.07, while South Korea’s Kospi was off 1.2 percent to 2,096.60. Australia’s S &P/ASX 200 slipped 1.5 percent. Benchmarks in Taiwan, Indonesia, and New Zealand were also lower.
Japan’s nuclear safety agency on Tuesday raised the severity of the Fukushima Dai-ichi nuclear plant incident to level 7, the highest on the scale and the same rating as the Chernobyl incident in 1986. That, plus continuing aftershocks, which safety officials say have interfered with recovery work, sent ripples of unease through markets.
“This is definitely something pretty scary,” said Dariusz Kowalczyk, of Credit Agricole in Hong Kong. “The markets in Asia today are experiencing a large increase in risk aversion with investors taking profits and basically running for cover.” The International Monetary Fund cut its forecast of Japan’s economic growth to 1.4 percent for the year, down 0.2 percentage points from its pre-quake outlook. It cited damage to factories, power outages and other disruptions from the March 11 quake and tsunami, which are believed to have killed more than 25,000 people.
Uncertainty in Japan has also dampened the outlook for regional growth, even as many central bankers in Asia struggle to contain high inflation.
South Korea’s central bank left its key interest rate on hold Tuesday, as inflation jumped to its highest level in more than two years.
China was an exception to the rout, with the Shanghai Composite index up 0.4 percent, as surplus liquidity and a reluctance to sell ahead of key economic reports on Friday bolstered equities.
“What we are dealing with in China this week is a huge surplus of liquidity in the banking system pushing down interest rates,” Kowalczyk said. “In such a situation, investors take their cash and buy equities or real estate.” Oil prices fell sharply overnight, after the International Monetary Fund downgraded its growth expectations for the US as well as Japan.
Benchmark crude for May delivery was down $1.64 at $108.28 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.87 to settle at $109.92 on Monday.
Shaky hopes of an Africa-brokered cease-fire in Libya also helped reverse the run up in crude, despite ongoing fighting.
“Any reduction at this stage in violence could see some profit taking on the oil side,” said Lorraine Tan, director of equities research at Standard & Poor’s in Singapore.
On Wall Street on Monday, stocks closed mostly lower after the International Monetary Fund said that higher gas prices could slow the pace of the US economy and offset the boost from the Federal Reserve’s bond-buying stimulus program.
Alcoa, which reported its first-quarter earnings after the bell Monday, offered a disappointing kick off to the US
earnings season. Sales missed analyst expectations, adding to gloominess about global resource stocks.
The Dow Jones industrial average rose less than 0.1 percent to close at 12,381.11. The broader S &P 500 index fell 0.3 percent to 1,324.46. The Nasdaq composite lost 0.3 percent to 2,771.51.
In currencies, the dollar was at 83.89 yen, down from 84.75 late Monday in New York. The euro fetched $1.4397, down from $1.4429 late Monday.
Indian markets were closed Tuesday for a holiday.
