US STOCKS-Markets fall after Japan aftershock; VIX up

* Strong aftershock raises worry of wider scale problem

* Rise in VIX futures signals bets index may top 20

* Costco, Macy’s sales strong, shares rise; Target falls

* Indexes down: Dow 0.5 pct, S&P 0.4 pct, Nasdaq 0.2 pct

* For up-to-the-minute market news see [STXNEWS/US]
(Updates to late afternoon; changes byline)

By Angela Moon

NEW YORK, April 7 (Reuters) – U.S. stocks fell on Thursday
after Japan suffered a major aftershock, which caused injuries
and renewed concerns about industrial supply disruptions and
nuclear power.

Investors sought protection against further market
declines, which sent the CBOE Volatility Index VIX (.VIX: Quote, Profile, Research) up
2.2 percent to 17.27. VIX futures also rose as investors bet
the index could rise above 20 by May.

The earthquake, measured at magnitude 7.4, caused no
tsunami or detectable damage at the Fukushima Daiichi nuclear
plant, but investors remained cautious after Japan’s 9.0 deadly
earthquake and tsunami on March 11. For details, see
[IDm:nL3E7F72Y2]

“It got people thinking that maybe this is not finished
yet, and this is of a bigger scale than what we had expected,”
said Jack DeGan, chief investment officer at Harbor Advisory
Corp in Portsmouth, New Hampshire.

The VIX, which often moves inversely to the S&P 500,
measures the cost of hedges or protection investors are willing
to pay against a fall in the S&P 500. The heavy call volume
suggests expectations for more anxiety in the future.

The iShares MSCI Japan Index ETF (EWJ.P: Quote, Profile, Research) dropped 0.9
percent, rebounding off earlier lows, while dollar-denominated
Nikkei futures (NKc1: Quote, Profile, Research) slid 1.2 percent.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) was down 61.91
points, or 0.50 percent, at 12,364.84. The Standard & Poor’s
500 Index (.SPX: Quote, Profile, Research) was down 5.35 points, or 0.40 percent, at
1,330.19. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) was down 5.97
points, or 0.21 percent, at 2,793.85.

Stocks had been mostly flat prior to the news of the quake,
with the S&P 500 encountering strong technical resistance that
stymied gains after a larger-than-expected drop in weekly
jobless claims and March retail sales that topped expectations.
[ID:nN0784911]

“The consumer seems to be hanging in there despite higher
gas prices,” said Donald Selkin, chief market strategist at
National Securities in New York, which has about $3 billion in
assets under management.

Among retailers, Costco Wholesale Corp (COST.O: Quote, Profile, Research) beat
expectations, and its shares gained 3.4 percent to $77.57.
Macy’s Inc (M.N: Quote, Profile, Research) rose 0.3 percent to $25.26 while Target Corp
(TGT.N: Quote, Profile, Research) fell 2 percent to $49.93.

Bed Bath and Beyond Inc (BBBY.O: Quote, Profile, Research) surged 10.1 percent to
$54.37 a day after it forecast full-year earnings growth that
would beat Wall St expectations. [ID:nN06160714]

U.S.-listed shares of Japanese stocks fell, but some
analysts said they might buy on the weakens.

“I’m looking at auto manufacturers, and I’m definitely
looking to buy Honda if it gets cheap enough,” said Tim
Hartzell, chief investment officer for Houston-based Sequent
Asset Management.

New York-traded shares of Honda Motor Corp (HMC.N: Quote, Profile, Research) rose 0.2
percent on volume that neared its 50-day average.
(Reporting by Angela Moon, Editing by Kenneth Barry)

US STOCKS-Markets fall after Japan aftershock; VIX up