Nikkei surges, other stock markets quiet

Hopes that Japan's nuclear crisis may be coming under control supported stock markets Tuesday, despite signs of discord over the military strikes in Libya and mounting expectations that interest rates in Europe will rise soon.

Japan's Nikkei posted significant gains on its first trading day of the week — markets were closed Monday for a public holiday. Investors welcomed signs that authorities were stabilizing the Fukushima nuclear complex following the catastrophic March 11 earthquake that unleashed a tsunami, which slammed into the complex, causing major malfunctions and radiation leaks.

The Nikkei spiked 4.4 percent, or 401.57 points, to close 9,608.32, supporting global stock markets. However, gains elsewhere in the world were far more modest, a sign investors remain cautious following big stock gains in the past few days.

"It's looking like investors are showing signs that shares have got a little over extended in recent days, so it would not be a shock to see some easing back from current levels," said Will Hedden, a sales trader at IG Index. "Trading floor sentiment still remains cautious as the Libyan military campaign and intermittent interruptions to the work on the Japanese nuclear reactors continue to unsettle the markets."

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In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 5,796 while the CAC-40 in France rose 0.4 percent to 3,920. Germany's DAX was more or less unchanged at 6,814.

Wall Street was poised for a steady opening following solid gains Monday — Dow futures were up 24 points at 11,987 while the broader Standard & Poor's 500 futures rose a little under 2 points to 1,,295.

Investors' appetite for riskier trades, such as stocks, was weighed down in recent weeks by the confluence of alarming events around the world. On top of Japan's natural disasters, investors had to grapple with the potential implications of a nuclear meltdown and escalating conflict in Libya.

In Libya, coalition forces including the U.S., Britain and France launched another wave of strikes to protect civilians from government troops and to enforce a no-fly zone.

However, discord has erupted in Europe over whether the military operation in Libya should be controlled by NATO. Turkey temporarily blocked the alliance's participation while Italy issued a veiled threat to withdraw the use of its bases unless the alliance was put in charge. Germany also questioned the wisdom of the operation, and Russia's Vladimir Putin railed against the UN-backed airstrikes mounted so far against Moammar Gadhafi's forces.

The prospect of a longer shutdown in oil production in Libya, which accounts for a little under 2 percent of global crude supplies, kept oil prices at high levels. A barrel of crude as traded on the New York Mercantile Exchange was down 22 cents at $102.87 while the equivalent Brent rate in London fell 28 cents a barrel to $114.63.

In the currency markets, both the euro and the British pound were supported by mounting expectations that both the European Central Bank and the Bank of England will raise interest rates next month.

ECB officials, including its president Jean-Claude Trichet, this week reiterated their concerns over inflation, signaling a rate hike can still be expected as early as April. Analysts also said the Bank of England will find it difficult not to raise its main interest rate from the record low of 0.5 percent in the next couple of months after figures Tuesday showed consumer price inflation hit 4.4 percent in February — more than double the Bank's target of 2 percent.

By mid-morning London time, the pound was 0.5 percent higher at $1.6390, just shy of its earlier 15-month high of $1.6397.

The euro has also been supported by signs that EU officials are finally getting a handle on the debt crisis that has already seen Greece and Ireland get bailed out.

On Monday, finance ministers of the 17 countries that used the euro made further progress in establishing a new bailout mechanism from 2013, when the current facility expires.

Analysts think the progress ahead of the summit of EU leaders on Thursday and Friday is a further indication that eurozone countries will do whatever it takes to make the single currency project work.

"Last year the euro was highly sensitive to each piece of news related to the eurozone crisis," said Jane Foley, senior currency strategist at Rabobank International. "This behaviour has altered significantly this year given the current, widespread belief that whatever the crisis throws, the political will is strong enough to bind the system together."

The next hurdle is likely to be Wednesday's Parliamentary vote in Portugal. There is a growing concern that the minority government will fall if it fails to muster enough votes for its latest package of austerity measures. The leader of Portugal's main opposition party said the government's downfall is "inevitable."

Earlier in Asia, Hong Kong's Hang Seng gained 0.8 percent to 22,857.90. South Korea's Kospi rose 0.5 percent to 2,013.66 and Australia's S&P/ASX 200 inched up less than 0.1 percent to 4,643.40.

Shares in mainland China were mixed. The Shanghai Composite Index rose 0.3 percent to 2,919.14 while the Shenzhen Composite Index lost 0.1 percent to 1,284.84.