Stockmarket reopens bug-free but troubled

By LIBBY MIDDLEBROOK

Far from starting the new year in a blaze of glory, New Zealand shares stumbled through day one of millennium trading knocked by international unrest over a potential rise in US interest rates.

The market suffered its largest decline in seven months yesterday, with the Top 40 Capital Index closing 2.4 per cent down at 2153.11.

Concerns that the United States Federal Reserve will raise interest rates to control inflation this year stung, with 27 top 40 stocks falling in value.

US market observers have predicted a one percentage point rise in short-term interest rates this year, sending markets into a spiral around the world. The US Federal Reserve Board is due to meet on February 1 and 2, with chairman Alan Greenspan reappointed for another term in the belief that his influence can keep not only the US economy, but the world economy, in reasonable shape.

"It's all related to what's happening in the United States, our markets are dictated by offshore trends," said Don Turkington, managing director of Cavill White Securities.

"It's a reflection of rising bond interest rates in the US and that led to a big sell off in US equities, especially in the high tech fields."

Telecom, which makes up 30 per cent of the Top 40 index, was down 32c or 3.6 per cent to 868c at closing while Fletcher Challenge Energy fell 30c or 6 per cent to 470c, its largest fall since March, 1998. However, both adjustments brought the stocks in line with their Sydney closes the previous day.

Fernz managed a 5c rise, closing 1.2 per cent up at 440c.

JB Were's Peter Stokes said a lack of domestic business activity and trading had also left New Zealand stocks more susceptible to international market trends.

"At the moment there's an absence of domestic activity so we're sensitive to what's happening in offshore markets. It has been very soft all day."

Market analysts did not expect New Zealand shares to continue on a downward spiral long-term with strengthening commodity prices and a stable economy. However, some were unsure about how long stocks would be affected by movements in the US market.

Meanwhile, Australian stocks suffering on their second day of trading with the All-ords closing 73.2 points or 2.34 per cent down to 3050.9. Traders did not believe it was the beginning of a serious correction on the local market.

Asian stocks took a beating, with Japan's Nikkei 225 losing 2.42 per cent. Singapore's Straits Times index fell 4.2 per cent and Hong Kong dropped 7.18 per cent.

Earlier the US Nasdaq Index of high tech stocks fell 229.46 points or 5.6 per cent to 3901.69 while the Dow Jones industrial average slid 359.58 points or 3.17 per cent on Tuesday.

Analysts expect the unrelenting US economy will leave the Federal Reserve with no choice but to raise interest rates. The latest reading of the economy's strength showed that construction rose sharply in November, buoyed by a rebound in the private sector and a long spate of warm weather that allowed projects to continue.

Following speculation over rising US interest rates, Deutsche Bank strategist David Plank said the only thing that would stop the Reserve Bank from rising interest rates in New Zealand in March was a long-term severe decline in equity markets around the world.

The slide continued in early London trading last night with the FTSE-100 index slipping 1.5 per cent within minutes of opening.