Japan earthquake drives down major European markets at close. US stocks at midday also down as investors try to evaluate impact of new 7.4 magnitude Japan earthquake.
News of another Japan earthquake and tsunami hurt global stock markets Thursday, wiping out gains made earlier, when investors had brushed off the European Central Bank's first interest rate increase in nearly three years and Portugal's request for a bailout.
Confirmation that a magnitude 7.4 earthquake struck off the already-battered northeastern coast of Japan led to a knee-jerk sell-off in Europe and the U.S. However, markets steadied somewhat as investors concluded that the 7.4 quake was far smaller than the 9.0 quake from March 11 and that the tsunami would only be one meter high, compared with ten meters high a month ago.
"This story will most likely be the key driver of sentiment for the rest of the day as we receive more news from Japan," said Will Hedden, a sales trader at IG Index.
Before news of the quake, stocks in Europe had been trading higher while those in the U.S. were more or less unchanged.
The market response showed how nervous investors are about the situation in Japan, particularly with regard to the damaged Fukushima nuclear plant.
Earlier, the markets had been preoccupied with developments in Europe after Portugal finally accepted it needed international help to sort out its public finances and the ECB lifted its main interest rate by a quarter of a percentage to 1.25 percent.
Both pieces of news had been widely predicted, although the timing of Portugal's bailout plea came earlier than anticipated given the country has no government.
There are even hopes that Portugal's long-awaited request may stabilize the situation within the 17-country eurozone for a while as fears of contagion to other countries, such as much bigger Spain, have diminished.
Those hopes, along with the prospect of higher interest rates, have supported the euro.
By late-afternoon London time, the euro was trading 0.3 percent lower at $1.4290. On Wednesday, the euro hit a 15-month high of $1.4349 on expectations of the ECB rate hike.
Higher interest rates would not necessarily boost the euro if other central banks were also tightening monetary policy. But with the U.S. Federal Reserve showing few signs that it's planning to start hiking rates, the euro has been buoyant against the dollar.
Better-than-expected weekly jobless claims in the U.S., showing a fall of 10,000 last week to 382,000, are unlikely to affect the Fed's policy much. The monthly payrolls figures are more important when assessing the outlook for U.S. monetary policy.
Meanwhile, the response in bond and stock markets to Portugal's bailout request has been relaxed. In Portugal, investors showed relief by pushing the country's main stock index up 1.3 percent, making it one of the best performers in the eurozone.
"Portugal's bailout appears to have been entirely priced into markets, as there was little reaction to the announcement," said Benjamin Reitzes, an analyst at BMO Capital Markets. "Attention will now turn entirely to Spain, though the decline in yields and credit default swap spreads so far this year suggest markets aren't concerned about contagion."
Earlier in Asia, Tokyo's Nikkei 225 index rose less than 0.1 percent to close at 9,590.93 even though the Japanese economy got a boost when the Bank of Japan, in a widely expected decision, kept its key interest rate unchanged at near zero and extended emergency loans to financial institutions affected by the earthquake and tsunami crisis.
In the oil markets, the apparent stalemate in Libya, which accounts for a little under 2 percent of the world's daily oil production, kept oil prices high.
Benchmark crude for May delivery was down 21 cents at $108.59 a barrel in electronic trading on the New York Mercantile Exchange, a little shy of its 30-month high of $109.15.