The yen briefly hit record highs versus the dollar on Thursday as quake-hit Japan's nuclear crisis unleashed a global risk sell-off, while world stocks ticked higher after Tokyo stocks came off earlier lows.
Risk aversion fanned expectations Japanese investors would sell overseas assets, including lucrative carry trades, to bring home funds. The yen rose as high as 76.25 per dollar, levels which raise intervention concerns.
Japanese military helicopters dumped water on an overheating nuclear plant. Japan's nuclear agency said three of the six reactors at the Fukushima nuclear plant in northern Japan are now relatively stable.
Some slightly more positive news from Japan over attempts to avert a full-blown nuclear catastrophe has helped add a degree of stability to shares during the Asian session, but the situation is still very much hanging in the balance, Peter Stanhope, Institutional trader at IG Markets, said.
MSCI world equity index rose 0.3 percent, moving away from this week's three-month low. It hit 30-month highs in mid-Feb but it has erased all of this year's gains.
The Thomson Reuters global stock index was down 0.15 percent. The FTSEurofirst 300 index rose more than one percent as a recent sell-off attracted bargain hunters.
Tokyo stocks fell 1.4 percent, recovering from the intraday low as cheap valuations attracted foreign buyers and steadied the market. Earlier this week, Japanese stocks suffered their worst two-day sell-off since 1987.
The CBOE's Volatility Index, Wall Street's fear gauge, rose 21 percent to 29.40 on Wednesday, its highest since July.
Emerging stocks fell 0.7 percent.
U.S. crude oil rose one percent to $98.96 a barrel as investors focused on concerns about potential supply disruptions from an escalating turmoil in Bahrain.
Bahraini forces cleared a protest camp in Manama on Wednesday after Saudi Arabian troops entered the country earlier this week.
German government bond futures fell 28 ticks.
The yen stood at around 78.95 per dollar. Traders said a break of 79.75 unleashed a sharp selling of the dollar.
The break below this level in an otherwise illiquid period saw a move to 76.25 in a heartbeat. Price action has been disorderly and reminiscent of price action during the height of the global financial crisis, RBC said in a note to clients.
Japanese margin traders were cited as one of the main factors behind the move as stop-loss orders were triggered in their leveraged bets in currencies like the Australian dollar.
Traders also said foreign investors were scrambling to get hold of yen to settle margin calls on bets on Japanese shares, forcing them to turn to spot currency at times as well as forwards and cross-currency swaps.
Japan's finance minister Yoshihiko Noda blamed speculation for the yen spike and said he was closely watching markets. Group of Seven finance leaders and central bankers will discuss possible steps to calm markets at 2200 GMT.
I... believe that the U.S. and Europe will participate by acting as an agent for Japan in buying foreign currency, Citi analyst Greg Anderson wrote in a note.
The dollar fell 0.6 percent against a basket of major currencies while the euro rose two thirds of a percent to $1.3989. Gold slipped more than $5 to $1,394 an ounce at one point
(Additional reporting by Blaise Robinson; Editing by Toby Chopra)