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New Zealand stocks plunged back into the red yesterday following another overnight drop in the US prompted by negative economic data, worsening credit conditions and nervousness over today's US$700 billion bailout vote.
The NZX-50 fell 81 points, or 2.51 per cent, to end the day on 3151.54 after the Dow Jones industrial average fell 3.2 per cent and the S&P 500 slid over 4 per cent.
The Australian market also fell 65.7 points, or 1.38 per cent, to end at 4695.4.
First NZ Capital director of economics and strategy Jason Wong said the New Zealand market drop was primarily driven by another poor day on Wall St as investors awaited the outcome of today's vote. Added to that pressure had been a raft of negative economic data to come out of the US this week, he said.
Figures revealed the number of people filing for unemployment benefits hit a seven-year high and a steep drop in factory orders was recorded for August.
The tough credit conditions also stepped up another notch as interest rates on three-month US dollar loans rose to a nine-month high, short-term corporate borrowing fell by the most ever and leveraged loans tumbled, exacerbating the credit freeze that is paralysing businesses around the world.
The London interbank offered rate (Libor) - the rate banks charge each other for loans - rose for the fourth day in a row, driving up scarcity as banks hoard their existing cash.
The credit markets have frozen and money-market rates keep rising despite central banks having pumped more than $1 trillion into the financial system.
More negative employment data in the US was also expected overnight.
Wong said the data was spurring concerns that even if the bailout deal passed the global economy faced a very tough time.
On the New Zealand markets, Wong said turnover remained light as few investors were prepared to make the bottom call and jump back in and those who had ridden it out for the last 12 months prepared to stay put.
"No one has really got the confidence to dive in and say 'this is the bottom'."
Wong said it was difficult to predict when the markets would return to normal as the movement was sentiment driven. "The outlook is pretty weak."
Top stock Telecom fell 6c to $2.89, dropping back from Thursday's 13c gain while Contact Energy was down 27c to $7.61 and Fletcher Building fell 37c to $6.83.
The US$700 billion ($1 trillion) rescue package vote is expected to be decided by the House of Congress early this morning New Zealand time.
Yesterday eight lawmakers were reported to have changed their minds from a no to a yes vote and a further four indicated they may also switch.
The original bailout was defeated on Tuesday (NZ Time) by a narrow 228 to 205 vote and a change of heart is needed by just 12 voters to get it through.
A revised version with a number of tax sweeteners was passed by the Senate on Thursday by a strong majority of 74 to 25.
