European shares fell to a 3-1/2 month closing low on Tuesday as investors fled risky assets amid concerns of a nuclear crisis in Japan, with further pain seen for sectors such as luxury goods which rely on Japanese demand.
As much as $247 billion was wiped off the value of major European stock markets in earlier intraday trading, as money poured into safe-haven government bonds after a Japanese nuclear power plant exploded and sent low levels of radiation floating towards Tokyo.
The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed down 2.2 percent at 1,084.70 points, its lowest closing level since Nov. 30, 2010, after recouping some hefty losses in late trading.
"There are issues out there that are making the market nervous. When you look at what is happening at the nuclear reactor it becomes harder to work out what the implications could be," said Jane Coffey, a fund manager at Royal London Asset Management who has 340 million pounds ($548.2 million) of assets under management.
Despite the broad sell-off she said the crisis represented a buying opportunity for stocks such as British Gas which could benefit from a boost in demand for liquefied natural gas from Japan due to the loss of nuclear production.
Wholesale gas prices rose in Britain, as damage to Japan's nuclear reactors increased the likelihood for spot LNG being diverted away from the UK to Japan.
Renewable energy companies gained interest on the back of concerns about nuclear power, with Nordex, Solarworld and Q-Cells up 16.7 to 23.3 percent.
"It (the crisis) will definitely have some effect on how people view nuclear energy in Japan," Coffey said.
PRESSURE ON LUXURY
Luxury goods firms declined for the second straight session on worries over the impact of demand from major consumer Japan following the earthquake in the country, with PPR among the biggest decliners in the sector, down 5.3 percent.
"In terms of impact on European luxury companies, we believe the impact could be fairly significant given Japan is the currently the largest luxury market globally," Nomura analysts wrote in a note, adding that they saw Richemont and Adidas as most negatively impacted within the sector.
Richemont shed 3.7 percent while Adidas fell 3.1 percent, against a 2.6 percent drop on the STOXX Europe 600 personal and household goods index .
Traders said the market was also looking for an excuse to take profits in the sector, which have had a good run so far this year on a bullish outlook for demand from emerging markets.
The fall in equities coincided with a rise in the VDAX-NEW volatility index , one of Europe's main barometers of anxiety, which surged to a near 10-month high.The higher the volatility index, based on sell- and buy-options on Frankfurt's top-30 stocks, the lower investors' appetite for risky assets such as stocks.
The equity market's steep fall has also taken the index below its 200-day moving average -- a key technical sell signal for equities.
Nick Tranter, head of derivatives at Espirito Santo said investors had been picking up put options on Euro STOXX 50 .STOXX50E to hedge against the downside risk. Interest had been centred on the June expiry with the right to sell the index at 2,100 STXE21000R1.EX. (Editing by Jon Loades-Carter)