Investor Alert

March 11, 2011, 3:11 p.m. EST

Quake Adds to Stock Woes in Asia, Europe

By Aude Lagorce

Japanese stocks fell sharply Friday, as an earthquake that struck near the end of trading exacerbated broad Asian-market weakness brought on by higher-than-expected inflation in China.

The Nikkei Stock Average fell 1.7% to 10254.43, its lowest close since Jan. 31. It sank 4.1% for the week, its worst since the week ending July 2. The Tokyo Stock Exchange reported that its systems weren't affected by the quake that struck northeastern Japan in the last 30 minutes of trading.

In TOKYO , MS&AD Insurance Group Holdings (TKS:JP:8725) fell 3.2%, Japan Petroleum Exploration (TKS:JP:1662) dropped 3.3% and Fast Retailing (TKS:JP:9983) gave up 2.9%.

"It's probably too early to really assess the impact…There's always a knee-jerk reaction to such things," said Andrew Sullivan , director for institutional sales at OSK Securities. "The tsunami wave seems to be creating a lot of damage, so the insurers are probably going to be badly hit by that. You generally see construction companies do quite well after [a quake]"…What people will look at before Monday is how [Japanese companies'] American depositary receipts trade in the U.S."

Stocks in other Asian markets extended losses amid fears of damage to Japan's economy. Hong Kong's Hang Seng Index slid 1.6% to 23249.78, China's Shanghai Composite dropped 0.8% to 2933.80 and Australia's S&P/ASX 200 slid 1.2% to 4644.83. All of the benchmarks were lower on the week.

Most Asian markets already were lower following China's release of monthly inflation data earlier in the day, which raised fears of further monetary tightening in the country. Interest-rate-sensitive stocks in Hong Kong and China were the biggest losers.China Overseas Land & Investment fell 3% in Hong Kong, while China Merchants Bank (HKG:HK:3968) shed 2.6% in Hong Kong and 2.4% in Shanghai.

Australian shares extended their losses after the China data. But tensions in the Middle East and Libya are a greater drag on Australian shares than the Chinese inflation figures, said Ric Spooner , chief market analyst at CMC Markets. Among miners, Rio Tinto (NYS:RIO) dropped 2% and BHP Billiton (NYS:BHP) fell 1%.

European stocks closed at their lowest level this year, as insurance stocks tumbled in reaction to the earthquake.

The Stoxx Europe 600 index fell 0.9% to 275.42, its lowest close since Dec. 8. The benchmark ended the week down 2.3%, as euro-zone debt concerns and instability in the Middle East and North Africa spooked investors.

Some of Friday's biggest blue-chip decliners were companies in the reinsurance sector. Munich Re (FRA:DE:MUV2) fell 4.3% and Hannover Re (FRA:DE:HNR1) dropped 5.3% in Frankfurt, while Swiss Re fell 3.5% in Zurich and Scor sagged 5.2% in Paris.

In PARIS , CAC 40 index fell 0.9% to 3928.68.

In FRANKFURT , DAX 30 declined 1.2% to 6981.49. Fertilizer company K+S fell 4.7% but closed above the price at which BASF (FRA:DE:BAS) sold its 10.3% stake in the company for €1 billion ($1.38 billion). BASF shed 0.6%.

In LONDON , the FTSE 100 shed 0.3% to 5828.67, slumping 4.2% over the week, the worst showing among the three major national indexes and its sharpest weekly loss since the week ended July 2.

Cruise operator Carnival (LON:UK:CCL) declined 2.7% as it lowered its earnings guidance for thxe year, blaming fuel prices.

"The earthquake in Japan added to the uncertainty in markets, but you already had tensions in the Middle East, the oil price going up and problems resurfacing in the euro zone. This is a perfect storm of uncertainty coming together, so we could see a couple of weeks of 'risk off,' with corrections in the equity market," said Philippe Gijsels , head of research at BNP Paribas Fortis (TSE:CA:FTS) Global Markets.

Write to Aude Lagorce at aude.lagorce@dowjones.com

Link to MarketWatch's Slice.