March 11, 2011 / 9:59 AM / 9 years ago

REFILE-JAPAN MARKETS-Stock fall may be limited post-quake, damage eyed

(Refiles to fix formatting of graphic links)

* Nikkei futures drop 3.3%, exchanges still open

* Yen bounces after initial dip and JGBs surge; damage eyed

* Stocks likely to fall further, but drop may be limited

* Construction stocks may gain similar to post-Kobe trade (Updates prices, adds CDS)

By Hideyuki Sano and Antoni Slodkowski

TOKYO, March 11 (Reuters) - Japanese stock futures fell 3.3 percent on Friday after a massive earthquake rattled Japan’s northeast, but market players said the share slide may not be too deep because major cities and manufacturing facilities were not affected.

The yen bounced back from an initial dip to rise on the day, a move reflecting some expectations that Japanese investors could bring back funds from their hefty foreign investments as happened in the weeks after the 1995 Kobe earthquake.

While the full extent of the quake’s damage was still being assessed, analysts said the images and reports so far did not suggest a major economic and financial disaster. Construction companies such as Kajima Corp were seen as potential gainers.

“We still don’t know what’s the damage like, but stocks will probably fall on Monday, especially of those companies that have factories in the affected areas. But on the whole the sell-off will likely be short-lived,” said Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management after the market closed on Friday.

The 8.9 magnitude earthquake triggered a 10-metre tsunami and violently shook buildings in Tokyo shortly before regular trading on the Tokyo Stock Exchange ended, disrupting trade at the very end of the day.

One worry is the potential impact from reconstruction spending on Japan’s stretched finances for a country that is already the world’s most indebted industrialised nation, by some measures.

Japan’s ruling coalition and opposition parties agreed an extra budget would be needed to tackle the earthquake’s economic fallout.

While the Tokyo and Osaka exchanges were open as usual for after-hours trading in bond and stock futures, many traders abandoned their desks for home after the initial shock subsided.

Nikkei index futures indicated the market would fall further when trade opens on Monday. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Analysts reaction

BOJ offers help, factories shut after quake

Huge tsunami slams Japan


-- Quake epicentre

-- Markets after Kobe quake

-- More on post-Kobe markets

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Osaka Nikkei stock index futures fell 1.4 percent in after hours trade to 10,030, for a full-day drop of 3.3 percent. June futures clawed back after sliding to as low as 9,950, the lowest since December 2010. The cash Nikkei ended down 1.7 percent at 10,254.

Kajima Corp, a major general contractor, was the Nikkei’s biggest percentage gainer on Friday, turning positive in the last 15 minutes of trade and finishing up 1.9 percent in heavy volume. The construction sub-index on the Tokyo Stock Exchange’s first section was down just 0.5 percent.

In the month after the earthquake in Kobe in January 1995, construction stocks sharply outperformed the broad market .

In the six months after the Kobe quake, the Nikkei plunged as much as 25 percent — a move that was exacerbated by the yen’s surge, in part due to trade frictions with the United States. By the end of 1995, the Nikkei had recovered all those losses.

The yen slid in initial reaction to near 83.30 per dollar, but later posted broad gains to near 82.30 as dealers remembered how the Japanese currency hit a record high of 79.75 on the flow of capital back into the country after the Kobe quake.

Ten-year Japanese government bond futures edged up 0.07 point to 139.27 in after-hours trade after having surged 0.66 point during the regular session, benefiting from the rush out of equities. The 10-year yield fell 3 basis points to 1.270 percent.

Before the quake struck, the Nikkei was down more than 1 percent and government bonds got a boost from the slide in Wall Street shares on Thursday. The quake and the disruption to phone lines caused a flurry of activity before the market closed.

“The phone was not working so we couldn’t trade. I was lucky enough to have a long position so I didn’t have to do anything. But to be honest, I was busy making phone calls to my family and I don’t remember when cash bonds stopped trading,” said a fund manager at a U.S. asset management firm in Tokyo.

The Bank of Japan vowed to ensure financial market stability and liquidity.

“I think in terms of the earthquake damage, it’s typically a fiscal issue and not a monetary policy issue ... this is clearly a massive fiscal challenge,” Adrian Foster, head of financial markets with Rabobank International in Hong Kong.

Japanese sovereign CDS spreads widened only slightly, showing little worry about the near-term fiscal outlook. The five-year sprad was 3 basis points wider at 82 basis points, well below last year’s peak near 100 bps during the euro zone crisis but still wide

The swings in financial markets following major quakes in Japan have hurt investors before. Most famously, the rogue trader Nick Leeson’s bets on Nikkei 225 stock futures led to a collapse of Barings Bank after the market plunged in the wake of the Kobe disaster.

As the market kept falling, Leeson added to his losing bets, hoping for a turnaround that did not come soon enough. (Additional reporting by Saikat Chatterjee in Hong Kong; Writing by Kevin Plumberg; Editing by Tomasz Janowski)

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