* MSCI world, emerging indexes down over 2 pct
* Japan stocks fall 14 pct at one point on nuclear fears
* Oil down 2 percent; Bunds, yen rise broadly
* Wall Street set for losses
By Sujata Rao
LONDON, March 15 (Reuters) - Fears of a potential radiation
disaster in Japan hammered world stocks to a near 3-month low on
Tuesday and fuelled a 2 percent fall in oil prices, as investors
fled for the safety of U.S. and German government bonds.
Reports of rising radiation near Tokyo prompted funds to
bail out of Japanese stocks, triggering a more than 10 percent
fall in the Nikkei <>.
They also prompted an across-the-board rout of risky assets.
A measure of European equity volatility jumped 30 percent to a
10-month high and the Swiss franc hit a record high. U.S.
Treasury yields fell 13 basis points as investors bought
<US10YT=RR>.
A state of emergency in Bahrain added to the mood.
Wall Street looks set to open sharply lower, with stock
index futures down more than 2.5 percent.
Tokyo stocks fell 14 percent at one point before posting
their worst two-day losing streak since 1987 after Japan said
the risk of nuclear contamination was rising. []
And Japanese bond yields rose as investors sold debt to
offset equity losses. Concerns also rose that the country,
already saddled with public debt double the size of its economic
output, may issue more government bonds to fund quake relief.
"The market will do its best to price in the worst case
scenario and we will move forward from there. But the situation
is very fluid and changing from hour to hour," said Keith
Bowman, equity analyst at Hargreaves Lansdown.
"The Japanese funds have a considerable amount of foreign
debt and there are concerns that events may cause them to sell
some of their debt and repatriate the funds."
The MSCI world equity index <.MIWD00000PUS> fell over 2
percent, hitting its lowest since mid-December. The index has
erased all of this year's gains, and is now down more than 1.2
percent since the end of December.
The Thomson Reuters global stock index <.TRXFLDGLPU> fell
2.4 percent. The Nikkei 225 index fell 10.6 percent while the
broader TOPIX index fell 16.3 percent this week, the worst
two-day losing streak since October 1987.
The FTSEurofirst 300 index <> fell 3.2 percent while
emerging stocks <.MSCIEF> were down 2.3 percent.
"The panic has set in with the nuclear alert in Japan and
investors are fleeing with no respite in sight," said Mic Mills,
head of electronic trading at ETX Capital in London.
The VDAX-NEW volatility index <.V1XI>, one of Europe's main
barometers of anxiety, was up around 25 percent, having hit its
highest level in 10 months. The higher the volatility index,
based on sell and buy options on Frankfurt's top-30 stocks
<0#.GDAXI>,the lower investors' appetite for risky assets such
as stocks.
Oil prices <CLc1> fell around $3 a barrel despite
escalating turmoil in the Middle East where Saudi troops have
been called in to help quell anti-government protests in
Bahrain.
Brent futures <LCOc1> dipped under $110 a barrel for the
first time since February 24.
SAFE HAVENS
The dollar <.DXY> rose 0.6 percent against a basket of major
currencies, pulling away from last week's four-month low.
German government bond futures <FGBLc1> rose more than 100
ticks to 123.35, having hit an intra-day high of 123.69, while
yields <DE10YT=TWEB> eased 11.6 basis points to 3.1.04 percent.
They earlier hit their lowest since end-January at 3.089
percent.
However Japan's benchmark 10-year yields rose by one basis
point to 1.215 percent <JP10YTN=JBTC>.
Japan's five-year credit default swaps, which gauge the cost
of insuring the country's debt against default, jumped 31 basis
points from the close to a record high of 125 basis points.
The losses on local markets allowed the yen to give up early
gains. Those were fuelled by expectation that Japanese investors
would repatriate some of their overseas holdings. The currency
eased 0.1 percent on the day to trade at 81.54. <JPY=>
"Foreign investors are heavily invested in Japanese stocks
and for the moment that's leading to yen outflows which is
helping to compensate for the expectation of yen repatriation,"
said Manuel Oliveri, currency strategist at UBS in Zurich.
The Bank of Japan stepped in to keep the banking system
stable for a second day, offering $98 billion of cash if needed.
It lined up a record $183 billion in same-day funds on Monday
and doubled an asset-buying scheme to support prices.
In Germany, a survey by the ZEW economic think tank showed
investor sentiment falling in March on worries over Japan's
crisis and a possible rise in euro zone interest rates.
That pushed the euro to a session low of $1.3855 before
later trading at $1.3897. Against the yen, the euro fell 1.44
percent to 112.54 yen. <EURJPY=R>
Investors are waiting now for a U.S. Federal Reserve policy
meeting later on Tuesday to see if the central bank signals any
exit from its ultra-loose monetary policy.
(Additional reporting by Natsuko Waki and Atul Prakash;
Editing by Ron Askew)
