* Fresh blow to struggling economy; ports, airports shut
* PM Kan calls on political leaders to "save the country"
* Leaders urge government to compile extra budget
* BOJ holds policy meeting Monday, promises to ensure stability
* Stocks fall, bonds jump on economic fallout concerns
By Osamu Tsukimori and Stanley White
TOKYO, March 12 (Reuters) - Japanese leaders pushed for an emergency budget to counter economic damage from a powerful earthquake and tsunami that killed hundreds and caused widespread destruction.
The Bank of Japan, which has struggled to return the country to growth, said it will cut short a two-day policy review scheduled for next week to one day Monday and promised to do its utmost to ensure financial market stability.
Auto plants, electronics factories and refineries shut, roads buckled and power to millions of homes and businesses was knocked out. Several airports, including Tokyo's Narita, were closed and rail services halted. All ports were shut.
Japan's biggest quake on record occurred as the world's third-largest economy had been showing signs of reviving from an economic contraction in the final quarter of last year.
The disaster raised the prospect of major disruptions for business and a repair bill of billions of dollars.
Leaders of the ruling and opposition parties agreed on the need for an extra budget after Prime Minister Naoto Kan asked them to "save the country," Kyodo news agency reported.
"The government would have to sell more bonds, but this is an emergency, so this can't be avoided," Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
"Given where the Bank of Japan's benchmark interest rate is now, they can't really lower rates. The BOJ will focus on providing liquidity, possibly by expanding market operations."
New Zealand's central bank slashed interest rates on Thursday after a 6.3 magnitude earthquake that wrecked Christchurch's central business district.
The Bank of Japan's options are more limited. It policy rate is already 0.1 percent following cuts during the global financial crisis.
The government's fiscal hands are also tied as it wrestles with the biggest public debt among industrialised countries at two times the $5 trillion economy.
"The government must act quickly to announce support packages and the central bank should pump more money into the economy," said Tsutomu Yamada, a market analysts at Kabu.com Securities.
Japan's economy looked set to return to growth in the first quarter of 2011, according to a Reuters poll this week.
After the disaster, it will probably fall again before growing more strongly as a result of rebuilding work, said Chris Low, chief economist at FTN Financial in New York.
The 8.9 magnitude quake sent shares skidding in Japan. Global stocks sank to their lowest level in nearly six weeks before recovering.
Electronics giant Sony Corp (6758.T: Quote), one of the country's biggest exporters, shut six factories, just one of scores of major companies affected by the disaster.
"There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories," said Yamamoto said.
A tsunami 10 metres high hit Sendai port in northern Miyagi prefecture, about 300 km (180 miles) northeast of Tokyo.
The Miyagi area includes major manufacturing and industrial zones with many chemical and electronics plants.
Miyagi accounts for 1.7 percent of Japan's gross domestic product (GDP), Macquarie Research said.
Manufacturing and utilities shut down including Toyota Motor Corp (7203.T: Quote) and Nissan Motor Co (7201.T: Quote) plants, officials said and media reported. Refineries also closed.
"There are two basic economics-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption," Macquarie said in a note.
"The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields."
QUAKE ADDS TO MARKET WORRIES
The yen initially fell but then recovered strongly, helped by Japanese investors bringing home investments held abroad as they lost their appetite for risk.
"Japanese investors that have been heavily invested overseas bring it back home in periods of risk aversion," said Michael Woolfolk, strategist at BNY Mellon.
The quake hit just before the Tokyo stock market closed, so prices didn't fully factor in the scale of the disaster. Nikkei stock futures SSIM1 plunged nearly 5 percent at one point.
"Stocks will probably fall Monday, especially of those companies that have factories in the affected areas, but on the whole the selloff will likely be short-lived," said Mitsuhsige Akino, a fund manager at IchiyoshiInvestment Management.
Bond futures 2JGBv1 surged on worries the damage would hurt the economy. The most active gold contract on the Tokyo Commodity Exchange, February 2012 JAUc6, inched higher.
"We still don't know the full scale of the damage, but considering what happened after the earthquake in Kobe, this will certainly lead the government to compile an emergency budget. We can expect consumption to fall. This could temporarily pull down gross domestic product," Yamamoto said.
The 1995 quake that devastated Kobe caused $100 billion in damage, though industrial production and financial markets bounced back fairly quickly.
(Writing by Kim Coghill and William Schomberg; Editing by Tomasz Janowski and Neil Fullick,sourced:Thomson Reuters)
* PM Kan calls on political leaders to "save the country"
* Leaders urge government to compile extra budget
* BOJ holds policy meeting Monday, promises to ensure stability
* Stocks fall, bonds jump on economic fallout concerns
By Osamu Tsukimori and Stanley White
TOKYO, March 12 (Reuters) - Japanese leaders pushed for an emergency budget to counter economic damage from a powerful earthquake and tsunami that killed hundreds and caused widespread destruction.
The Bank of Japan, which has struggled to return the country to growth, said it will cut short a two-day policy review scheduled for next week to one day Monday and promised to do its utmost to ensure financial market stability.
Auto plants, electronics factories and refineries shut, roads buckled and power to millions of homes and businesses was knocked out. Several airports, including Tokyo's Narita, were closed and rail services halted. All ports were shut.
Japan's biggest quake on record occurred as the world's third-largest economy had been showing signs of reviving from an economic contraction in the final quarter of last year.
The disaster raised the prospect of major disruptions for business and a repair bill of billions of dollars.
Leaders of the ruling and opposition parties agreed on the need for an extra budget after Prime Minister Naoto Kan asked them to "save the country," Kyodo news agency reported.
"The government would have to sell more bonds, but this is an emergency, so this can't be avoided," Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
"Given where the Bank of Japan's benchmark interest rate is now, they can't really lower rates. The BOJ will focus on providing liquidity, possibly by expanding market operations."
New Zealand's central bank slashed interest rates on Thursday after a 6.3 magnitude earthquake that wrecked Christchurch's central business district.
The Bank of Japan's options are more limited. It policy rate is already 0.1 percent following cuts during the global financial crisis.
The government's fiscal hands are also tied as it wrestles with the biggest public debt among industrialised countries at two times the $5 trillion economy.
"The government must act quickly to announce support packages and the central bank should pump more money into the economy," said Tsutomu Yamada, a market analysts at Kabu.com Securities.
Japan's economy looked set to return to growth in the first quarter of 2011, according to a Reuters poll this week.
After the disaster, it will probably fall again before growing more strongly as a result of rebuilding work, said Chris Low, chief economist at FTN Financial in New York.
The 8.9 magnitude quake sent shares skidding in Japan. Global stocks sank to their lowest level in nearly six weeks before recovering.
Electronics giant Sony Corp (6758.T: Quote), one of the country's biggest exporters, shut six factories, just one of scores of major companies affected by the disaster.
"There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories," said Yamamoto said.
A tsunami 10 metres high hit Sendai port in northern Miyagi prefecture, about 300 km (180 miles) northeast of Tokyo.
The Miyagi area includes major manufacturing and industrial zones with many chemical and electronics plants.
Miyagi accounts for 1.7 percent of Japan's gross domestic product (GDP), Macquarie Research said.
Manufacturing and utilities shut down including Toyota Motor Corp (7203.T: Quote) and Nissan Motor Co (7201.T: Quote) plants, officials said and media reported. Refineries also closed.
"There are two basic economics-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption," Macquarie said in a note.
"The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields."
QUAKE ADDS TO MARKET WORRIES
The yen initially fell but then recovered strongly, helped by Japanese investors bringing home investments held abroad as they lost their appetite for risk.
"Japanese investors that have been heavily invested overseas bring it back home in periods of risk aversion," said Michael Woolfolk, strategist at BNY Mellon.
The quake hit just before the Tokyo stock market closed, so prices didn't fully factor in the scale of the disaster. Nikkei stock futures SSIM1 plunged nearly 5 percent at one point.
"Stocks will probably fall Monday, especially of those companies that have factories in the affected areas, but on the whole the selloff will likely be short-lived," said Mitsuhsige Akino, a fund manager at IchiyoshiInvestment Management.
Bond futures 2JGBv1 surged on worries the damage would hurt the economy. The most active gold contract on the Tokyo Commodity Exchange, February 2012 JAUc6, inched higher.
"We still don't know the full scale of the damage, but considering what happened after the earthquake in Kobe, this will certainly lead the government to compile an emergency budget. We can expect consumption to fall. This could temporarily pull down gross domestic product," Yamamoto said.
The 1995 quake that devastated Kobe caused $100 billion in damage, though industrial production and financial markets bounced back fairly quickly.
(Writing by Kim Coghill and William Schomberg; Editing by Tomasz Janowski and Neil Fullick,sourced:Thomson Reuters)
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