Anxious sell-off leaves stocks in negative territory

By Graham Bowley
New York Times / March 17, 2011

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NEW YORK — There was no respite for weary investors yesterday as deepening worries about Japan’s nuclear crisis prompted another sharp sell-off, leaving stocks in negative territory for the year.

The anxiety was heightened as stocks, bonds, and currencies alike swung sharply through the course of a trading day punctuated by worsening news about Japan — as well as word that police had clashed again with protesters in Bahrain.

“There is so much uncertainty about the Japanese situation and the Middle East that people are just struggling to quantify them,’’ said Barry Knapp, head of American equity strategy at Barclays Capital.

Stocks seemed set for more volatile trading as this morning dawned in Japan, amid reports that foreign financial firms were pushing Japanese stock market officials to halt trading. The benchmark Nikkei 225 shed 3.6 percent to 8,765.00 points early today. That erased a portion of the gains from yesterday’s rally, which followed a sharp plunge.

The yen strengthened further, striking a 16-year high, on speculation that Japanese investors may be selling their overseas holdings of assets like US Treasuries to bring capital home to help pay for reconstruction after the earthquake and tsunami.

Investors have been hit by one hard-to-foresee event after another in the past year, leaving them bewildered, Knapp said. From the European sovereign debt crisis to the protests across the Middle East and the Japanese earthquake, tsunami, and nuclear crisis, the risks seem to be multiplying.

Yesterday started with investors seemingly reassured by a 5 percent recovery in Japanese shares. But stocks slumped shortly after 11 a.m., when traders focused on a warning from a European Union official that a catastrophic event at the stricken Fukushima nuclear plant might be imminent.

Treasury bond prices spiked at the same time, forcing the Federal Reserve Bank of New York to cancel a bond-buying operation for the first time.

Stocks recovered slightly around midday, only to fall sharply again.

By the end of the trading session, the Dow Jones industrial average was down 242.12 points, or 2.04 percent, to 11,613.30. The broader Standard & Poor’s 500-stock index lost 24.99 points, or 1.95 percent, to 1,256.88. The Nasdaq declined 50.51 points, or 1.89 percent, to 2,616.82.

All three major indexes have fallen more than 3.5 percent so far this week, putting the benchmark S&P 500 index down about 0.1 percent for the year.

Oil prices climbed back above $98 a barrel as violence intensified in North Africa and the Middle East.

The VIX, a measure of volatility in the Standard & Poor’s index, rose to its highest in more than six months, and market participants reported unusually large sales in the S&P 500 e-mini future, the instrument that was one of the triggers of last May’s flash crash, and big sales of some exchange-traded funds linked to Treasury bond yields, adding to the feverish atmosphere.

Treasuries rose, continuing their ascent of recent days. Since Japan’s earthquake and tsunami, the prices of risky assets like stocks and commodities have plummeted while safe-haven investments like Treasuries have risen.

With the uncertainty rising, government officials and central bankers signaled that they were prepared to act.

The Bank of Japan continued to pump liquidity into the financial system, and Christine Lagarde, France’s finance minister, raised the possibility Japan could receive financial aid from other countries. Lagarde said she was arranging a discussion among finance ministers and central bankers from the Group of 7 countries.

In particular, officials in Paris think the European Central Bank still has room to maneuver — certainly compared with the US Federal Reserve — in terms of using monetary tools to bolster liquidity in markets.