KEY POINTS:
New Zealand has weathered jitters in the international financial markets because it is not so exposed to concerns over the United States sub-prime loan problem, Finance Minister Michael Cullen said yesterday.
Large central banks have poured hundreds of billions dollars into the banking system over concerns there was not enough cash around to deal with the fallout from the US problems.
Concern at banks' exposure to defaulting mortgages that were made on dodgy credit has sent shockwaves through financial markets around the world.
New Zealand was less affected than others and Cullen said it had even created some positive effects due to many money traders taking a more conservative stance.
The New Zealand sharemarket has dropped 6 per cent since the US sub-prime woes spilled over into global markets on July 27, closing down 0.1 per cent yesterday at 4065.
But the dollar has also fallen, dropping more than 8 per cent since July 27 to close at US73.2c yesterday.
"From New Zealand's perspective it is not unhelpful in taking some of the heat again out of the New Zealand dollar because of the flow-on effects," Cullen said.
He also believed that some had over-reacted to the problem.
"I think there was to some extent a bit of an exaggeration around the seriousness of what is occurring. I think what we have learnt over the last week or so is the international finance system is in much better shape to cope with these kind of events than was the case 10 years ago."
Central banks in Europe, the US and Asia have injected about US$400 billion ($547 billion) cash into markets since Friday. More money was pumped in yesterday.
"That has clearly stabilised to a very significant extent the markets. But some correction is inevitable given the nature of the US sub-prime mortgage market and what's been happening there," Cullen said.
The European Central Bank said yesterday markets were beginning to return to normal, while the US Federal Reserve reiterated it was ready to provide cash to the financial system as needed.
That sent a soothing signal to stock markets, including Wall St, which recovered from steep falls last week.
The Dow Jones industrial average was up 0.29 per cent and the Standard & Poor's 500 Index was up 0.32 per cent. Shares in the UK were also up 3 per cent.
In Japan, the central bank drained money from the country's banking system as surplus funds drove down the overnight cash rate.
- Agencies
