Japan's stock market nose-dived nearly 11 percent, leading world markets sharply lower on Tuesday, as an escalating nuclear crisis threatened to compound the devastation from last week's earthquake and tsunami.
Investors took fright on the news that a radiation leak was detected at a crippled power plant and residents were warned to stay indoors. The benchmark Nikkei 225 stock average sank a staggering 10.6 percent _ more than 1,000 points _ to close at 8,605.15 after hitting a midday low of 8,227.63 points, more than 14 percent down.
Following on from Monday's 6 percent decline, the first trading day since the devastating earthquake and tsunami struck the northeastern coast, the Nikkei has now suffered its worst two-day trading losses for 40 years.
The chill was felt across all markets, with the yen boosted by Japanese investors repatriating funds as a precautionary measure against risk and to pay for reconstruction. Oil prices took another hit on fears over the impact on global consumption.
In early European trading, stocks took a battering, with German stocks the worst performing _ Germany has relatively big economic ties with Japan. The country's main DAX index was down 5.1 percent at 6,517, with many of the country's industrial giants like BMW AG, Volkswagen AG and Daimler AG trading down by even more.
France's CAC-40 slid 4.1 percent to 3,719, with leading nuclear reactor manufacturer Areva down more than 9 percent. Britain's FTSE 100 index fell 3 percent to 5,601.
The heavy selling is poised to continue at the Wall Street open, even though the Federal Reserve is expected later to sound cautiously optimistic about the U.S. recovery. Dow futures were down 250 points, or 2.1 percent, at 11,676 while the broader Standard & Poor's 500 futures slid 32.30 points, or 2.5 percent, to 1,258.10.
"Financial markets have been rattled by the growing risk posed by potential radiation leaks at the stricken nuclear power plants in Japan," said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ.
Investors felt the biggest shock waves when Japan's prime minister announced that radioactive material had leaked from the Fukushima Dai-ichi nuclear plant in Fukushima province and that more leaks were possible. People living within 19 miles (30 kilometers) of the complex were told to stay indoors.
The stock sell-off in Tokyo hit nearly every business sector, with electric companies under intense pressure again. The Tokyo Electric Power Co., which operates the crippled nuclear plant, crashed 24.7 percent. Toshiba Corp., a maker of nuclear power plants, wilted 19.5 percent.
Other companies with nuclear power-related businesses faced a second day of free-falling losses. Mitsubishi Heavy Industries tumbled 10.9 percent, Kobe Steel Ltd. dived 12.1 percent, and Hitachi Ltd. shed 12.6 percent. Cosmo Oil, whose refinery caught fire after the quake, slid by 9 percent.
Car makers declined partly because quake-stricken northeastern Japan is a major center for auto production, complete with a myriad of parts suppliers and a network of roads and ports for efficient distribution.
Toyota Motor Corp. said it would suspend manufacturing at its domestic plants through Wednesday _ a production loss of 40,000 cars. Other manufacturers like Sony Corp. and Honda Motor Co. were also forced to halt production. Damage to roads and distribution systems made it all but impossible to move products.
Toyota, the world's largest automaker, fell 7.4 percent. Honda lost 3.9 percent and Nissan Motor Corp. dropped 3.3 percent. Mitsubishi Motors Corp. lost 9.3 percent and truck-maker Isuzu Motors Ltd. plunged 9.2 percent.
other Asian markets could not withstand the tide of negative sentiment. South Korea's Kospi lost 2.4 percent to 1,923.92 and Australia's S&P/ASX 200 fell 2.1 percent to 4,528.70. Hong Kong's Hang Seng index dropped 2.9 percent to 22,678.25.
In mainland China, the Shanghai Composite Index fell 1.4 percent to 2896.26, and the Shenzhen Composite Index of China's second, smaller exchange lost 1.3 percent to 1,293.61.
Oil prices dropped sharply despite ongoing tensions in the Middle East, with the regime of longtime Libyan leader Moammar Gadhafi recapturing lost ground from rebels and Saudi Arabian troops entering Bahrain to help out the embattled rulers.
By mid morning London time, a barrel of crude as traded on the New York Mercantile Exchange was down $1.92 at $99.27 while the equivalent Brent rate in London was $2.02 lower at $111.65.
In currency markets, the yen was a big gainer, partly through its capacity as a safe haven asset. A major natural disaster like an earthquake can also bolster the yen because investors expect the Japanese public and insurance companies to buy back their home currency in order to fund reconstruction, increasing demand for the yen.
By mid-morning London time, the dollar was 0.3 percent lower on the day at 81.46 yen, while the euro was down 1 percent at 113.17 yen. The euro was 0.8 percent lower at $1.3866 as the European currency loses its shine in times of risk aversion.
The appreciating yen is an additional worry for Japanese policymakers as it has the potential to price already-vulnerable exporters out of the international marketplace. Though the Bank of Japan has pumped in colossal amounts of money into the money markets over the past couple of days to support liquidity, analysts said it may be tempted to buy up dollars to rein in the export-sapping rise in the currency.
"The last thing Japan needs now is a strong yen which would hamper the exports it needs to try and rebuild what is already a highly indebted public sector economy," said Michael Hewson, market analyst at CMC Markets.
Pamela Sampson in Bangkok contributed to this report.