KEY POINTS:
The New Zealand sharemarket followed global markets downwards after jitters about China's sharemarket, but signs of recovery emerged by the end of the session.
China's benchmark index fell nearly 9 per cent yesterday on fears the Chinese government would crack down on speculation that has driven stocks to record highs.
New Zealand's NZSX-50 index was down 3.3 per cent in early trade - the biggest fall since November 2002.
But it recovered somewhat to end the day down 62.3 points or 1.52 per cent to 4037.12.
The New Zealand dollar went into decline across the board from about 7pm last night, falling particularly abruptly against the yen. The plunge picked up renewed momentum from about 7am today and the kiwi was still falling at 10am in hectic trading.
From 85.50 yen about 7pm yesterday it was down to 82.40 at 10am. Against the greenback the fall was from US71c to US69.85c, against the Australian dollar the kiwi dropped from around A89.35 to A88.65c, and against the euro from 0.5385 to 0.5280.
Overnight, the Japanese currency had exploded against Australian and Canadian dollars as well as the kiwi, all of which are popular targets of carry trades by speculators and individual investors in Japan. Against the greenback the yen rose nearly 2-1/2 per cent.
Following the 8.8 per cent plunge in China's benchmark Shanghai Composite Index, some speculators unwound their carry trades, in which they had borrowed cheap in yen to invest in higher-yielding currencies such as the NZ dollar.
Traders were expecting the unwinding of carry trades, which has been predicted for some time, was likely to continue if Chinese stocks resumed their sharp decline today, driving global equity prices lower.
Along with the Chinese stock price fall, investors are worried about rising defaults among high-risk borrowers in US subprime mortgages and tensions over Iran's nuclear programme.
In the US, stocks plummeted , briefly hurtling the Dow Jones industrials down nearly 550 points as Wall Street succumbed to the global market plunge.
The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in.
The Dow fell 4.3 per cent before recovering some ground in the last hour of trading to close down 3.17 per cent, according to preliminary calculations.
The decline was the Dow's worst since September 17, 2001, the first trading day after the terror attacks, when the blue chips closed down 7.13 per cent.
In Britain the top share index, the FTSE 100, tumbled 2.3 per cent amid the global sell-off, with banks and miners worst hit.
European shares experienced their biggest one-day percentage fall in nearly four years, with mining and energy shares leading the market rout. Economically sensitive sectors such as construction and building materials were also hit amid renewed concern about slower economic growth in the US and China.
The FTSEurofirst 300 index of leading European shares closed 2.86 per cent lower, its lowest level since January 11, erasing nearly two thirds of its gains since the start of the year.
In Tokyo the Nikkei shed 0.52 per cent, halting a three-session winning streak, as property shares slid on concern that their prices may have outpaced their potential earnings, while a firmer yen prompted selling of some exporters.
- NZPA
