Japan's Nikkei 225 rebounds as economic concerns ease
Japanese stocks rebounded on Wednesday as concerns over the long-term economic impact of Friday's earthquake and tsunami eased.
The Nikkei 225 gained 5.7% to close at 9,093.72 points.
Over Monday and Tuesday the index had dropped more than 16%, its biggest two-day fall for 23 years.
European markets held steady at first on Wednesday, with companies previously hit by nuclear or supply chain fears rebounding.
However, they fell back again in later trading, and US markets opened slightly down, as attention shifted back towards events in the Middle East and the rising oil price.
Germany's Dax index was Europe's best performer, rising 1% at the open, before giving up most of those gains by late morning.
E.On was one of the best performers. The utility firm had been hit on Tuesday by fears of a German clampdown on the nuclear power industry in response to the continuing leakage at the Fukushima Daiichi plant in Japan.
However, in the US, General Electric - whose nuclear technology arm had a role in designing the reactors in Fukushima - continued to fall in early trading on Wall Street.
Technology companies Infineon in Germany and Intel in the US rose strongly, as fears over damage to their Japanese supply chains eased.
Carmakers also rebounded in early trading in Europe for similar reasons, but then gave up their gains as the day progressed.
Earlier in the day, in Tokyo, stocks of financial companies, exporters and car companies were among the biggest gainers.
These sectors and stocks were among the hardest hit in the sell-off following the earthquake and tsunami.
Taking a cue from Nikkei's strong rebound, other markets in the region registered gains as well.
Seoul's main Kospi index rose 1.8%, while Australian shares ended the day 0.7% higher.
Japanese shares had tumbled in the aftermath of the disaster, with some of the biggest companies seeing their market values plunging.
"The market in general understands that Japanese shares are oversold," said Kazuhiro Takahashi of Daiwa Securities Capital Markets in Tokyo.
While concerns remain about the impact of the devastation on Japan's economy, analysts say stocks of companies which are not fully dependent on domestic demand are priced attractively.
"Once the nuclear plant problem is cleared out of the way, the market will go back to the level from before that panic sell-off," said Makoto Kikuchi of Myojo Asset Management.
While there is optimism about the economic recovery, many analysts believe there are other factors to consider.
"The rebound is pretty strong as investors realised they may have panicked a bit too much [on Tuesday]," said Fujio Ando of Chibagin Asset Management.
Mr Ando also believes that the markets may be distorted as traders try to cover bets they took that the market will continue to fall.
Many traders borrow shares they do not own, promising to repay them at a later date at a fixed price.
They then sell the shares, hoping to buy them back at a cheaper price in a falling market, thus making a profit on the difference, a practice called short-selling.
"It's mostly short covering by both domestic and foreign players, and not honest, active buying, because nuclear worries are still strong," Mr Ando said.
Investors were optimistic about a recovery despite reports of another fire at the Fukushima Daiichi nuclear plant.
Analysts have warned that developments at the plant will have an impact on the markets.
"The market is still extremely volatile," said Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities.
"All eyes are on the nuclear plant and the Nikkei will move according to the news about the plant," he added.
There have been concerns about a meltdown at the plant after it was hit by explosions.
The reactor was the worst hit by the earthquake in Japan.