High-yielding stocks' appeal pushes index up following interest rate cut

The Reserve Bank on Thursday lowered the benchmark interest rate to a record-low 2.5 per cent, ending its current cutting cycle and reducing the appeal of fixed interest investments.

New Zealand shares rose as high-yielding stocks became more attractive after Thursday's interest rate cut by the Reserve Bank, with Meridian Energy, Contact Energy and Steel & Tube Holdings all advancing.

The S&P/NZX50 Index gained 29.38 points, or 0.49 per cent, to 6069.95. Within the index, 30 stocks rose, 17 fell and three were unchanged. Turnover was $165.9 million.

The Reserve Bank on Thursday lowered the benchmark interest rate to a record-low 2.5 per cent, ending its current cutting cycle and reducing the appeal of fixed interest investments, such as bank term deposits.

"Yields are underpinning our market at the moment," said James Smalley, director at Hamilton Hindin Greene. "Obviously the big news in general this week was the rate cut, and to a degree it makes high-yielding stocks look even more attractive to people looking for income than they previously were."

Meridian led the market higher, up 3.3 per cent to $2.325, and has a 5.3 per cent yield. Contact, which has a 16.5 per cent yield, rose 2.6 per cent to $4.72, and Steel &Tube, with an 8.8 per cent yield, rose 1.9 per cent to $2.20.

Kathmandu Holdings rose 3.3 per cent to $1.59. The outdoor clothing retailer had to fend off an opportunist and unsuccessful takeover offer from Briscoe Group in June when its shares tumbled to a record low.

"One thing with low commodity prices and low oil prices is it will be adding to discretionary income so retailers should be doing all right," Smalley said.

"Maybe investors are hoping the worst is over. There was a spike on the Briscoes' attempted takeover, and there have been several sell-offs, but Kathmandu has managed to hold itself up."

Hallenstein Glasson, the clothing retailer outside the benchmark index, gained 1.2 per cent to $3.28. Jewellery chain Michael Hill International rose 1.1 per cent to 95c.

Orion Health Group was the biggest decliner yesterday, dropping 2.8 per cent to $3.15, an all-time low. The stock has fallen 17 per cent since November 25, when it announced a wider first-half loss of $26.9 million.

Heartland New Zealand rose 0.8 per cent to $1.34. The locally listed bank affirmed annual earnings guidance, and said it's keen on buying rivals to grow its business, especially in consumer finance.

Precinct Properties New Zealand was unchanged at $1.25.