Markets plunge on global fears

A TOXIC cocktail of fears over the worsening nuclear crisis in Japan, violence in the Middle East spiralling out of control and the prospect of an EU/IMF bailout for Portugal saw markets worldwide plunge for the third day in a row yesterday.

The losses piled up after the European Union’s commissioner for energy said that the crisis at Japan’s earthquake-damaged Fukushima nuclear plant was “out of control”, while a top US nuclear safety official said that the situation in Japan was worse than officials had indicated with one of the damaged reactors dry and emitting “extremely high” radiation levels. The US government last night urged Americans in Japan to stay outside a 50-mile radius of the reactors – more than double the distance ordered by Japanese officials.

Japan’s Nikkei shed more than half the gains it made on Wednesday, falling 2.8 per cent in the first hour of trading despite the Bank of Japan’s offer to inject a further 5 trillion yen (£3.8bn) into the banking system in same-day funds, continuing its effort to boost liquidity and calm markets. That came on top of a total of 28 trillion yen already offered in same-day operations this week.

The yen rose to a fresh all-time high against the dollar of 76.32 yen on speculation investors would buy the currency to fund reconstruction projects in the aftermath of last Friday’s devastating earthquake and tsunami.

The Bank of Japan, due to make a statement later last night, is expected to intervene to weaken the currency.

Meanwhile, violence continued to worsen in the Middle East with the Bahrain stock exchange forced to close after the ruling royal family declared a three-month state of emergency and the military was called in to reassert control over the capital Manama.

And in Portugal, bond yields rose again yesterday as its downgrade by Moody’s heaped pressure on its fragile economy with its sale of €1bn (£870m) in short-term government debt seeing its yields rise from 4.05 per cent just two weeks ago to 4.33 per cent.

Analysts said it is now a matter of “when” rather than “if” Portugal accepts an EU bailout.

The FTSE crashed 1.7 per cent to a fresh three-month low of 5598.23, while the Dow Jones index, down as much as 300 points at one point, finished 242.12 points lower, or 2.04 per cent, at 11,613.30.