Shares and other risky assets from the Australian dollar to commodities such as copper and oil slumped on Tuesday while safe-haven assets like U.S. Treasuries rallied as Japan's nuclear crisis worsened.
Rising radiation levels at an earthquake-hit nuclear plant in northeastern Japan triggered a huge selloff in Japanese shares and panic hoarding of food and other supplies in Tokyo.
At one stage, Nikkei futures were down 16 percent before paring losses to 10 percent, while the benchmark Tokyo stock index ended down almost 11 percent, its biggest one-day percentage loss since October 2008.
The Nikkei has lost around 17 percent of its value since a massive earthquake and tsunami struck the country on Friday, leading to explosions at several nuclear plants and forcing thousands of factories to shut.
The downside is completely open-ended at the moment as headlines come through, said Roland Randall, a strategist at TD Securities in Singapore, adding that markets would react negatively until the nuclear threat is contained.
Stocks in the rest of Asia as measured by MSCI fell nearly 3 percent as the nuclear crisis worsened and the MSCI world index slid 1.2 percent.
European stock markets were expected to slide in early trade, while U.S. stock index futures fell 0.8 percent, pointing to more losses on Wall Street later in the day.
Australian shares fell 2.1 percent, with shares of uranium miners extending losses as some countries indicated they were rethinking plans for nuclear power in the wake of the Japan disaster.
It is like pricing an unknown risk. The comments from Japan pushed the market off the edge, Shane Oliver, head of investment strategy at AMP Capital in Sydney said.
South Korea fell 2.4 percent, led by nuclear power plant designer KEPCO Engineering & Construction, which plunged 15 percent.
SAFE HAVEN RALLY FOR DOLLAR AND TREASURIES, AUSSIE PLUNGES
The dollar soared to just above 82.00 yen on trading platform EBS from near 81.40 before settling back to near 81.65 yen, little changed on the day and not far from a record low of 79.75 struck in 1995.
U.S. Treasuries rallied on the global flight to safe assets as risk aversion overpowered concerns that Japanese insurers would sell Treasuries to fund payouts at home, which would also boost the yen.
Yields on 10-year U.S. Treasuries fell further to 3.24 percent from 3.37 percent earlier in the day, although they were off the day's lows.
The U.S. Federal Reserve's policy-making Federal Open Markets Committee meets on Tuesday and although the Fed is seen exiting its stimulus earlier than Japan, few are expecting policy to change during this meeting.
Asian currencies took a battering, led by the Australian dollar which is often used as a proxy for global risk and dumped during times of stress.
The Australian dollar was the worst performing currency on Tuesday, falling more than 1.5 percent to a session low around $0.9925, a level last seen in January. It last traded at around $0.9949, with resistance seen at $1.0046 and support at $0.9884.
The New Zealand dollar was also under pressure, shedding more than one percent on the day to a six-month low of $0.7295, while the Thai baht was also hit.
Asian cash and credit default spreads gapped sharply higher, with South Korea, typically a volatile market that is prone to risk-aversion, seeing the biggest rise in spreads.
Korean spreads rose 16 basis points (bps) to 116bps/118bps, Thailand, the Philippines and Indonesia all gapped 12bps.
MARKET TURMOIL SPREADS TO OIL AND METALS
Commodity prices also slumped on reports of mounting radiation levels in parts of Japan and fears that prevailing winds could sweep radioactive material into Tokyo and other heavily populated areas.
Brent crude for April fell as much as 1.9 percent to 1.9 pct to $111.49 before recovering to $119.49.
Even gold, a traditional safe-haven investment, was hit. Spot gold almost one percent to $1,415.26 an ounce by 0615 GMT, after rising as much as 1 percent on Monday.
Three-month copper on the London Metal Exchange reversed early gains to edge down 1.3 percent at $9,080 a tonne.
People are going for risk aversion, so investors are liquidating assets and positions including in crude oil and gold, said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.
BANK OF JAPAN SEEKS TO EASE PAIN
Euroyen futures edged higher and short-dated swap contracts dipped on Tuesday following the Bank of Japan's offered to pump 5 trillion yen ($61 billion) into the banking system after injecting a record 15 trillion yen in same-day market operations on Monday and eased monetary policy further by expanding its asset buying programme.
Ten-year Japanese government bond futures close on half a point to 140.28, on the way to testing the high for the year, helped by safety bids and following a rout in the stock market.
(Additional reporting by Chikafumi Hodo and Antoni Slodkowski in TOKYO, Vikram S Subhedar in HONG KONG, Clare Jim in TAIPEI, Cecile Lefort in SYDNEY; Editing by Richard Borsuk & Kim Coghill)