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A businessman is reflected on a board showing prices on the Tokyo Stock Exchange.

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The Toronto Stock Exchange opened with a shudder Tuesday as world markets were gripped by fears that a potential nuclear disaster in Japan could reopen the wounds of a freshly healed global economy.

But by the close Toronto's main index had regained much of its composure, recovering from a 381-point plunge early in the session to finish just 72.23 points in the red at 13,546.96.

Investors around the world were trying Tuesday to come to terms with the economic impact of the earthquake and tsunami that hit Japan last Friday, killing thousands, devastating the country's northeast coast and causing explosions at several nuclear power plants.

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The events have triggered a selloff of equities in Canada and around the globe, a panic that may have overestimated the scale of the economic disaster, said one analyst.

"I would put 95 per cent odds that the situation isn't nearly as dire as the marketplace is worrying," said John O'Connell, portfolio manager and chairman of Davis Rea Ltd.

Still, even in the best-case scenario there is going to be some impact on the global economy, Mr. O'Connell said.

"Japan is a large economy and you're going to see some reallocation of resources away from productive capacity for trade purposes and now it's going to go into reconstruction."

The junior TSX Venture Exchange was down 62.86 points at 2,130.21.

The Canadian dollar was also off the worst levels of the day after the currency earlier took a pasting as investors fled to the perceived safe haven of U.S. Treasurys. The loonie closed down 1.19 cents at $1.0163 (U.S.) after going as low as $1.0026 one point.

The selloff in equities started overnight in Japan after the country's Prime Minister announced that radioactive material had leaked from the Fukushima Dai-ichi nuclear plant in Fukushima province and that more leaks were possible. The comment sparked a crash on the main Tokyo stock market, which nose-dived almost 11 per cent.

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In New York, the Dow Jones industrial average closed down 137.74 points at 11,855.42, the Nasdaq composite index lost 33.64 points to 2,667.33 while the S&P 500 index fell 14.52 points to 1,281.87.

The Fukushima region was shattered by a 9.0-magnitude earthquake and ensuing tsunami Friday that is believed to have killed more than 10,000 people and pummelled the world's third-largest economy.

The Dai-ichi plant is the most severely affected of three nuclear complexes that were declared emergencies as a result of the disaster, raising questions about the safety of such plants in coastal areas near fault lines and adding to global jitters about the industry.

Canadian uranium miners sustained a second day of losses on concerns that the nuclear industry has suffered a huge setback as a result of developments in Japan.

Paladin Energy fell 5 per cent to $3.48 (Canadian) on top of a 21 per cent tumble Monday and Uranium One Inc. fell 13.46 per cent to $3.73.

But Cameco Corp. added about 1 per cent after sliding 13 per cent a day before - though Mr. O'Connell pointed out that Cameco has a unique problem.

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"Cameco sells about 20 per cent of its fuel to Japan, so I can see a real potential business problem for Cameco in the short term," he said.

The flight from risk sent commodity prices reeling, although oil, gold and copper all finished above session lows.

Energy stocks fell as the April crude contract on the New York Mercantile Exchange lost $4.01 (U.S.) to $97.18 a barrel. Prices had already been already under pressure on concerns that Japan will be using much less oil because of the economic impact of the catastrophe.

Initial estimates put Japan's overall rebuilding costs in the tens of billions of dollars, costs that would likely add to a massive public debt that is already the biggest among industrialized countries at 200 per cent of gross domestic product.

Mining stocks also shed gains as demand concerns pushed copper down 5 cents to $4.14 a pound, far below recent highs of more than $4.60.

The gold sector also backed off as bullion prices retreated because of the rising American dollar and concerns that demand from Asia would suffer. The April contract in New York was down $32.10 at $1,392.80 an ounce.

Financial stocks also weighed on the Toronto market with insurers taking some of the biggest hits. Manulife Financial, down 4.3 per cent at $16.02 (Canadian), has said it could face claim payouts of up to $150-million related to its business in Japan - an amount Mr. O'Connell said "should be pretty manageable."

"Manulife is exposed to falling interest rates and falling stock markets. So what's happened is, equity markets are down and interest rates are down."

Investors also took in the latest word on interest rates from the U.S. Federal Reserve. The Fed said its key interest rate would remain near zero and warned that higher commodity prices were fuelling inflationary pressures.

Even with Tuesday's decline, oil prices are still up sharply from just under $90 (U.S.) a barrel in mid-February because of a wave of unrest across North Africa and the Middle East.

As far a equities are concerned, analysts had been saying a small retracement was expected and welcome after markets rallied pretty much non-stop since last summer.

"Markets having been on such a strong growth trajectory recently, I think we're only just beginning to assess risk," said Mr. O'Connell.

"The markets are reacting to the Japanese situation but the markets have been ignoring a lot of other problems that have been brewing for quite some time," he said, referring to unrest in oil-producing countries and the European government debt crisis.

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