Shares drop 2pc as NZ feels the fear

The New Zealand market fell to a nine-month low yesterday after fears about Europe's sovereign debt crisis spread to Wall St where stocks took the biggest tumble in more than a year.

The NZX-50 plunged nearly 2 per cent yesterday, closing down 61.33 points on 3050.08. At one point the benchmark was trading as low as 3044.69 - the lowest since August last year.

Other markets around Asia also dived. Japan's Nikkei 225 stock average shed 2.45 per cent, to 9784.54, with exporters falling sharply on a strong yen.

Australia's ASX 200 reversed a 3 per cent drop in earlier trade to close down 0.26 per cent at 4305.4 points.

Benchmarks in mainland China, Indonesia and Singapore also retreated.

Investors fear debt problems in countries like Greece and Portugal will spill over to other countries in Europe.

That could then trigger a cascade of losses for big banks and in turn halt economic recovery in the United States and elsewhere.

AMP Capital head of strategy Jason Wong said the fall in the New Zealand market was being driven by overseas factors, including weak markets overnight reflecting concerns about the fears in Europe.

Wong said weak employment data in the US had also contributed to the drag on the market as well as a Senate vote on financial regulation designed to clamp down on issues that arose during the global financial crisis.

"A lot of people are taking risk off the table because of uncertainty."

Wong said investors had had a pretty strong run since April but the market had become more rocky in the past couple of weeks.

But he downplayed suggestions that the drop was a sign of the second double-dip many had said would happen after the global financial crisis.

"There is pretty solid global growth."

Wong said the New Zealand market tended to follow global markets and was also being influenced by China and Australia.

"That is one area where there are concerns."

China was being hit by moves to control the property boom and that was having a flow-on effect to Australia and New Zealand. "We are being driven by global issues."

Wong said the impact of the New Zealand Budget should have been positive but had turned out to be fairly minor.

He expected volatility in the markets to continue.

The New Zealand dollar regained some lost ground against most currencies after an overnight slide, when spooked investors moved to the safe-haven currencies of the United States dollar and Japanese yen. It closed up at US67.50c.

Westpac currency strategist Imre Speizer said the fears created over Europe were encouraging investors to move away from riskier currencies like the kiwi towards the yen and the US dollar. "It's an unwinding of risk."

Speizer said the Budget had had some positive impact on the kiwi, pushing it up against the US dollar yesterday.

"But it doesn't matter how good the local fundamentals are in a market where panic rules."

Speizer said the situation was not as bad as the global financial crisis yet.

"But it is heading that way."

Speizer believed the dollar had come up a little at the end of yesterday over the belief there could be some positive news out of Europe over the weekend after US Treasury Secretary Timothy Geithner announced plans to travel to Europe next week to confer with finance officials in Britain and Germany about ways to restore global confidence in the financial system.

- ADDITIONAL REPORTING: NZPA