Japan stocks jump 6 percent, JGBs slide as nuclear fears

TOKYO | Tue Mar 15, 2011 9:29pm EDT

TOKYO (Reuters) - Japanese stocks rallied more than 6 percent on Wednesday after their worst two-day selloff since the 1987 crash, with some investors picking up battered shares even as many said the risk of a worsening nuclear crisis could hit the market further.

Traders said the gains were likely driven by market players, such as hedge funds, covering short positions in futures, as well as some buying by portfolio managers after the two-day battering down stocks down more than 16 percent.

"The rebound is pretty strong as investors realized they may have panicked a bit too much yesterday," said Fujio Ando, senior managing director at Chibagin Asset Management.
"But it's mostly short covering by both domestic and foreign players, and not honest, active buying, because nuclear worries are still strong," Ando said.

JGB futures slid more than half a point and 20-year yields jumped to a one-year high as bond dealers fretted that a long-term bond auction later in the day may have trouble finding buyers. Japanese insurers sold bonds on Tuesday to cover losses in their stock portfolios, traders said.

The yen dropped across the board, with the dollar pushing up to 81.10 yen but still not far from a record low of 79.75 hit against the Japanese currency in 1995. The Australian dollar jumped nearly 1 percent against the yen.

Traders are still keeping an eye out for Japanese companies and insurers selling their hefty foreign asset holdings and repatriate funds to cover costs from the nuclear crisis, quake and tsunami, a factor that could drive the yen higher.

Japan's Nikkei average was up 6.4 percent at 9,152 .N225 after having plunged 10.6 percent on Tuesday but was still down 11 percent from Friday's close. Osaka Nikkei futures were up 4.5 percent at 9,030.
The broader TOPIX pushed up 6.5 percent to 816 .TOPX.

Hedge funds were cited as aggressive sellers of Nikkei futures on Tuesday as the market panicked over reports of leaking radiation from the stricken Fukushima nuclear reactor and higher radiation readings near Tokyo. Domestic fund managers have largely stuck to the sidelines, traders said.

Bonds lost more ground. Ten-year JGB futures were down more than half a point to 139.71, while the 20-year yield shot up 7 basis points to a one-year high of 2.150 percent.
Japan's Ministry of Finance will sell 1.1 trillion yen ($13.4 billion) of 20-year bonds later in the day.