KEY POINTS:
The New Zealand sharemarket showed some resilience to the latest round of credit crunch-related selling on Wall St, yesterday afternoon clawing back much of the losses sparked by the United States news during the morning session.
The US blue chip Dow Jones industrial average closed 294 points, or 2.1 per cent, lower on Tuesday after the Federal Reserve cut US interest rates by a quarter of a percentage point to 4.25 per cent, rather than by the half a percentage point some economists and investors had expected or hoped for.
On opening yesterday morning, the NZX-50 followed Wall St's lead, at one point falling 1.2 per cent to 3977, its lowest point since the August market rout when issues in the US high risk mortgage or sub-prime sector spilled over into wider financial markets.
But during the afternoon session the NZX-50 recovered and closed down just 0.68 per cent at 3999.6.
Bank of New Zealand economist Stephen Toplis said although many on Wall St had clearly hoped for a bolder move by the Fed, the selling was also driven by an indication from the central bank that what had been a financial sector issue was in danger of spilling further into the US economy.
In announcing the decision, the Fed said: "Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.
"Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time," the central bank said.
Toplis said: "There's a reading between the lines going on there that the Fed really is worried about the prospects for economic expansion.
"It's acknowledged that things could get a bit horrible but it hasn't lowered interest rates in line with that. So it's been a bit of double whammy."
First NZ Capital's Barry Lindsay said the local stocks hit hardest yesterday morning appeared to be those with direct US exposure such as Fletcher Building and Mainfreight. Both companies have made sizeable acquisitions in the US this year.
At one point Fletcher Building was down 36c at $10.97 before recovering to close at $11.10. Mainfreight closed down 12c at $6.95.
But Lindsay also noted that as in previous episodes of selling on the local market sparked by the US problems, turnover at $103.7 million, wasn't huge. "It's not a mass of investors exiting the market."
The Fed's decision and commentary also hit the New Zealand dollar by way of the carry trade on foreign exchange markets, where low yielding currencies like Japan's yen are borrowed to invest in high-interest economies such as New Zealand's.
The kiwi fell by about a cent to about US77.30c in reaction, but gained later to close at US77.90c, largely on demand from Japanese investors.
RIPPLE EFFECT
* Another day of credit crunch-related losses on Wall St hit the New Zealand market yesterday morning.
* The latest round of selling was sparked by the US Fed's decision to cut interest rates by 25 basis points rather than the hoped-for 50.
* But the NZX-50 recovered almost half of its early losses yesterday to close just 0.68 per cent lower at 3999.6.
