LONDON, March 15, 2011 (AFP) - European stocks slumped early on Tuesday after the Tokyo market closed down more than 10 percent on Japan's economic woes and nuclear crisis following the country's fatal earthquake and tsunami.
London's benchmark FTSE 100 index dropped 1.44 percent to 5,692.14 points, Frankfurt's DAX 30 dived 2.56 percent to 6,690.08 points and in Paris, the CAC 40 shed 1.73 percent to 3,811.09, with nuclear power companies again battered.
Traders were also concerned about the financial impact of the natural disaster on Japan, the world's third biggest economy.
"While it will be the human loss which will be the legacy of Japan’s earthquake, the marked reactions in stocks are illustrative of the rising concerns over the potential economic impact," said Rabobank analyst Jane Foley. "The increased risk of nuclear radiation introduced an element of panic selling in equity markets," she added.
As rescue workers continued to search for survivors from Friday's deadly earthquake and tsunami off the coast of Japan, eyes were on the troubled Fukushima No.1 complex where four reactors have now suffered explosions.
Tokyo's stock market slumped 14.17 percent at one point Tuesday before late buying pared some losses.
The Nikkei eventually closed down 10.55 percent to 8,605.15 points, as panicking investors dumped stocks after the Japanese government said levels of radiation leaking from a stricken nuclear plant posed a threat to health.
Japan's chief government spokesman later said that radiation levels at the quake-hit nuclear power plant had fallen after an earlier sharp rise.
In Europe, energy groups with nuclear interests saw their share prices dive for a second day. EDF dropped 2.43 percent to 28.25 euros and Areva plunged 6.63 percent to 29.41 euros in early Paris trade. Germany's EON dropped 3.75 percent to 21.05 euros and RWE retreated 3.62 percent to 43.99 euros in Frankfurt.
"Risk aversion has again reared its head, with investors preferring safer havens such as gold until such time as the extent of the problems is quantified," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, adding that the London FTSE's gains for 2011 had now been erased.
"The possibility of repatriation of funds by Japanese investors from abroad is a further drag on share prices," said Hunter.
It was not all bad news however, as companies specialised in solar energy saw their share prices rally on Tuesday.