Japan's Nikkei share average plunged 10.6 percent on Tuesday, posting the worst two-day rout since 1987, as hedge funds bailed out after reports of rising radiation near Tokyo. Many mutual funds were left on the sidelines, leaving them poised to dump shares into any rebound.
The yen tripped on talk of intervention by authorities trying to contain the economic impact from last week's devastating earthquake and tsunami, but then recovered. Government bond yields rose as investors sold debt to offset stock market losses.
-- TOPIX, Nikkei hit 2-year lows, hedge funds lead way
-- TSE volumes hit record for second day running
The scale and speed of the equity selloff forced domestic fund managers to sit on the sidelines as market volumes surged to a record for a second day running. At one point, the Nikkei had plunged 14 percent after Prime Minister Naoto Kan said the risk of nuclear contamination was rising at the Fukushima Daiichi complex on Japan's quake ravaged northeastern coast, 240 km (150 miles) north of Tokyo. The French embassy said low-level radiation could hit Tokyo within hours.
Local reports of radiation rising in communities near Tokyo only stoked the sense of panic. In contrast to Monday's trading, when construction stocks rose in anticipation of revenue from rebuilding contracts, none of the 225 constituents of the benchmark Nikkei average gained on Tuesday. Shares of construction company Kajima Corp slid 13 percent, a day after its shares surged.
The broad TOPIX index of Japanese stocks has shed 16.3 percent this week, the worst two-day losing streak since the global equity crash of October 1987. The Nikkei share average dropped 10.6 percent to 8,605.15, while the TOPIX share index lost 9.5 percent to 766.73 - both the worst single-day slides since the global selloff after the Lehman Brothers collapse in 2008.
The Tokyo Stock Exchange's first section, making up the country's biggest companies, has lost about $626 billion in market capitalisation this week. First section volume totalled 5.77 billion shares, a nearly 20 percent increase from Monday's record. During the first phase of the rout, many domestic portfolio managers sat on the sidelines to await more clarity on the nuclear troubles. But some investors threw in the towel on Tuesday.
Japanese officials tried to calm the market and moved to reduce short selling, placing limits on broker sales of stocks for arbitrage trading. That move helped spark a bout of short-covering in the afternoon, and stocks finished off their lows. Shares of Tokyo Electric Power , the owner of the stricken nuclear plant, did not trade, although sellers massed at the indicated price of 1,221 yen on Tuesday. There were no buyers at that price.
The stock market rout was bad enough to force some institutional investors to sell government bonds to offset losses in their portfolios before Japan's business year ends this month, traders said. Insurance companies were cited behind the selling in cash JGBs, pushing benchmark 10-year yields up a basis point to 1.215 percent . Longer-term yields were up even more. Nikkei futures remained volatile in after-hours trade. After an initial bounce, Osaka Nikkei futures fell 2.6 percent from the regular session close to 8,420. Still, JGB futures gave up their gains and slid into negative territory.
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