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Japanese stocks crushed but other exchanges hold steady

European stocks fell Monday, the first day of trading after the biggest Japanese earthquake on record, with power utilities and reinsurance companies taking the worst hits.

The European selling pressure, however, was not extreme, suggesting that most investors do not believe the Japanese disaster will wreck the global economic recovery.

In early morning trading in London, the benchmark FTSE-100 index was off only 0.35 per cent, far less than the 6.2 per cent plunge, on record trading volumes, seen on Japan's Nikkei 255 index. Some Asian market, including the Shanghai Composite, were up marginally.

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Later in the morning, the FTSE reversed course, going into positive territory, though the Eurofirst 300 index was still down.

In Europe, the reinsurers Munich Re and Swiss Reinsurance each fell about 3 per cent. Their fall came after AIR Worldwide, a provider of risk-modeling software, said the reinsurance industry may face claims of a much as ¥2.8-trillion ($34-billion).

Two large German power utilities, with nuclear interests, E.ON and RWE, each fell almost 3 per cent as investors reacted to fears that the global nuclear industry will undergo a thorough safety review, one that could delay development plans for years.

The fears came after Japan found itself in the middle of a potential nuclear catastrophe after a second massive blast occurred at the Fukushima Daiichi nuclear plant, operated by Tokyo Electric Power. The second explosion, in the Number 3 reactor, happened at about 11am local time and appeared to be more powerful than the first blast. An explosion destroyed part of the Number 1 reactor on Saturday.

The Japanese nuclear explosions triggered anti-nuclear protests in Europe. On Saturday, protestors formed a 45-kilometre human chain from Stuttgart to an old German nuclear plant, whose operated life had been extended. Police said as many as 60,000 protestors took part.

Japan is the world's third largest economy, after the United States and China, and the estimates for the losses are already higher than those of the 1995 Kobe earthquake, which killed 6,500 people in Japan and caused about ¥10-trillion of damage.

Credit Suisse estimated that the losses from Friday's earthquake will be as high as ¥15-trillion.

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Japanese stocks got hammered on Monday in the wake of the earthquake. Of the 33 Topix subindexes, only one – construction – was higher in investors' expectation of a massive reconstruction effort in northern Japan. Some industrial stocks lost a huge amount of ground on fears that rolling power blackouts and a potential plunge in domestic demand will damage profits. Car maker Nissan Motor was down 13 per cent.

In an effort to secure confidence, the Bank of Japan said it would inject as much as ¥18-trillion into the markets.

On Monday, the commodities markets were mixed. Gold and silver were up while copper and oil were down, though not dramatically. The euro was up slightly against the dollar in reaction to broader euro zone crisis fighting measures adopted Friday at the European Union leaders' summit in Brussels.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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