European shares drop on huge Tokyo losses

2011-03-14 13:56

London - Europe's main stock markets fell Monday, with insurers and power companies hit by fallout from the devastating earthquake and tsunami in Japan, whose Nikkei index closed at its lowest level for two-and-a-half years.

London's benchmark FTSE 100 index dropped 0.31% to 5 810.23 points and in Paris the CAC 40 slid 0.30% to 3 916.81 points. Frankfurt's DAX 30 saw greater losses, losing 1.66% to 6 865.75 on heavy falls for German insurers and power companies.

"Naturally traders maintain a definitive eye on the situation on Japan, where the terrible consequences of both the earthquake and subsequent tsunami has left a devastating effect on infrastructure and loss of life," said Joshua Raymond, analyst at City Index traders in London.

"The world's financial markets have responded to last week's events with traders trying to second guess the effects of the tsunami on demand for both materials, insurance liabilities and currencies.

"The Nikkei, Japan's benchmark index, falling some 6%... and suffering its worst trading day for over two years is likely to keep traders on edge somewhat," Raymond added.

The Nikkei-225 closed down 6.18% at 9 620.49 points on Monday, as investors reacted to the biggest earthquake in Japan's history, the devastating tsunami and an unfolding nuclear emergency.

The day's plunge below the 10 000-points level was the biggest since October 2008, the height of the global financial crisis.

In early Frankfurt deals, shares in the world's biggest re-insurance group, Munich Re, were down by 4.43% at €106.8, while general insurer Allianz had lost 3.40% to €96.43.

Insurance groups could face massive costs from the earthquake and tsunami that struck Japan on Friday, possibly killing more than 10 000 people according to the police chief in the Miyagi prefecture.

On Sunday a risk analysis by AIR Worldwide said the quake alone could exact an economic toll of up to $34.6bn (€25bn).

A Munich Re statement said however that the subsequent crisis at a Japanese nuclear power plant "will probably not significantly affect private insurers".

German power companies were quickly affected on the other hand.

Stocks in the two biggest, EON and RWE, plummeted as fears about nuclear power grew.

Shares in EON were off by 3.36% at €22.30, and number two RWE showed a loss of 4.60% to €45.72.

Germany has been debating whether to pursue use of nuclear power and the crisis at a tsunami-hit generating station in Japan will probably make it harder for power companies to overcome public opinion.

Meanwhile French nuclear group Areva dropped 9.5% on Monday amid the growing concerns over the industry.