By Osamu Tsukimori and Stanley White
TOKYO (Reuters) - Japanese leaders pushed for an emergency budget to help fund relief efforts as they braced for the economic damage of a powerful earthquake and tsunami that killed hundreds and caused widespread destruction along a lengthy stretch of coastline.
The Bank of Japan said it will cut short a two-day policy review scheduled for next week to one day Monday and promised to do its utmost to ensure financial market stability.
Auto plants, electronics factories and refineries shut, roads buckled and power to millions of homes and businesses was knocked out. Several airports, including Tokyo's Narita, were closed and rail services halted. All ports were shut.
Japan's biggest quake on record occurred as the world's third-largest economy had been showing signs of reviving from an economic contraction in the final quarter of last year. The disaster raised the prospect of major disruptions for many key businesses and a massive repair bill of billions of dollars.
Fearful of the economic impact, leaders of the ruling and opposition parties agreed on the need to compile an extra budget after Prime Minister Naoto Kan asked them to "save the country," Kyodo news agency reported.
"The government would have to sell more bonds, but this is an emergency, so this can't be avoided," Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
"Given where the Bank of Japan's benchmark interest rate is now, they can't really lower rates. The BOJ will focus on providing liquidity, possibly by expanding market operations."
The 8.9 magnitude quake sent shares skidding in Japan and elsewhere, adding to a slide in global stocks to their lowest level in nearly six weeks.
Electronics giant Sony Corp, one of the country's biggest exporters, shut six factories.
"There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories," said Yamamoto said.
A tsunami 10 meters high hit Sendai port in northern Miyagi prefecture, about 300 km (180 miles) northeast of Tokyo, but there were no immediate reports of damage.
Miyagi and its surrounding areas include major manufacturing and industrial zones, with many chemical and electronics plants. But early reports from the area were sketchy and it was not clear if some plants were shut simply due to a lack of power or because of quake damage.
Miyagi, the area most affected by the quake, accounts for 1.7 percent of Japan's gross domestic product (GDP), Macquarie Research said.
"There are two basic economics-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption," Macquarie said in a note.
"The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields."
Toyota Motor Corp said it had halted production at a parts factory and two assembly plants in the area, while Nissan Motor Co, the country's second-largest automaker, stopped operations at four factories, media reported.
Two people were reported killed by a collapsing ceiling at a Honda Motor Co factory in Tochigi prefecture, north of Tokyo, but no other details were immediately available.
QUAKE ADDS TO MARKET WORRIES
The yen fell as much as 0.3 percent against the dollar before recouping its losses amid risk aversion by Japanese investors and expectations that Japanese insurance companies will sell foreign assets to pay for claims.
The disaster also weighed on markets elsewhere, pushing shares in European insurance companies down. Large reinsurers -- Swiss Re, Hannover Re and Munich Re -- were all down more than 4.5 percent.
World stocks measured by the MSCI dropped 0.4 percent to their lowest level since the end of January.
The quake hit just before the Tokyo stock market closed, so prices didn't fully factor in the scale of the disaster. Nikkei stock futures plunged nearly 5 percent at one point.
"Stocks will probably fall Monday, especially of those companies that have factories in the affected areas, but on the whole the selloff will likely be short-lived," said Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management.
Bond futures surged on worries the widespread damage would put further pressure on the economy, while the most active gold contract on the Tokyo Commodity Exchange, February 2012, inched higher.
"We still don't know the full scale of the damage, but considering what happened after the earthquake in Kobe, this will certainly lead the government to compile an emergency budget. We can expect consumption to fall. This could temporarily pull down gross domestic product," Yamamoto said.
The Reserve Bank of New Zealand slashed interest rates on Thursday to support the New Zealand economy following a 6.3 magnitude earthquake that wrecked Christchurch's central business district.
But the Bank of Japan's options are more limited because its policy rate is already a lowly 0.1 percent following cuts during the global financial crisis.
The government's fiscal hands are also tied as it wrestles with the biggest public debt among industrialized countries at two times the $5 trillion economy.
Still, they may have little choice but to take action.
"The extent of the damage is hard to tell but it seems devastating for the northern Japan economy. The government must act quickly to announce support packages and the central bank should pump more money into the economy," said Tsutomu Yamada, a market analysts at Kabu.com Securities.
The 1995 quake that devastated Kobe caused $100 billion in damage, though industrial production and financial markets bounced back fairly quickly.
Hokuriku Electric Co said all of three reactors at its Onagawa nuclear plant Japan shut down automatically after the quake, but no radioactive leaks were reported.
However, Japan started to evacuate thousands of residents living near Tokyo Electric Power's Fukushima Daiichi nuclear plant after fears of a radiation leak. Official said there was no sign of leakage.
Electric Power Development (J-Power) also halted operations of its Isogo thermal power plant in Yokohama, Jiji reported.
Mitsubishi Chemical shut two naphtha processing plants with around 11 percent of Japan's overall ethylene-producing capacity.
Television reported a major fire at Cosmo Oil Co's Chiba refinery, east of Tokyo. JX Nippon Oil & Energy Corp, Japan's top refiner, halted operations at three refineries in Sendai, Kashima and Negishi, while Tonengeneral shut the main units at its Kawasaki refinery, media said.
Primearth EV Energy Co Ltd, a joint venture between Panasonic Corp and Toyota making batteries for environmentally friendly vehicles, said its Miyagi battery factory had halted production because of power cuts. The extent of any damage was not clear, but a spokesman said it did not appear to be major.
Mitsui Mining and Mitsubishi Material halted operations at zinc and copper smelters in the region.
(Additional reporting by TOKYO bureau; Writing by Kim Coghill; Editing by Tomasz Janowski and Neil Fullick)