KEY POINTS:
The New Zealand dollar soared US3c from its low overnight after a bold move by the US Federal Reserve calmed global financial markets.
The New Zealand dollar plunged to US66.43c overnight before making a phoenix-like rebound to US69.55c by 8am today. It was at US67.15c at 5pm on Friday.
The resurrection came as stock markets around the world rose after the US Federal Reserve cut the discount rate charged on direct Fed loans to banks by one-half percentage to 5.75 per cent. This is different to the main fed funds rate, which remains unchanged.
But the surprise move signalled to the world that the US central bank was on the job. It was moving to ensure the free the flow of funds in the financial system and avoid a credit crunch.
"In effect, (the Fed) is setting aside its inflation concerns and opening the door to a cut in the target federal funds rate to support growth," Global Insight economists Nigel Gault and Brian Bethune wrote in a note to clients.
The Dow Jones industrial average was up 176.80 points, or 1.38 per cent, at 13,022.58 in late afternoon trading.
"The markets are having a relief rally," said Tim Woolston, portfolio manager at Boston Advisors Inc.
Earlier Britain's top share index posted its biggest one-day gain since early 2003, rebounding dramatically from 11-month lows. The FTSE 100 index ended up 205.3 points or 3.5 per cent.
European stock markets also closed higher after roller coaster sessions.
The New Zealand share market is therefore expected to rebound on Monday but analysts in bank dealing rooms today said the markets "could still be crazy" next week.
Analysts are still trying to work out the extent of the bad loans problem in the United States. In effect, where the bad buck stops.
"It is good today but there are still worries out there," a currency dealer who declined to be named said.
The New Zealand share market has generally performed better than other markets because it has fewer financial stocks listed.
The plunge in the New Zealand dollar has also improved the outlook for export stocks that are large listings on the New Zealand market.
On Thursday the New Zealand dollar plunged US3c in its biggest one-day fall for 21 years.
The Australian sharemarket fell 0.71 per cent in a seesaw session dominated by persistent worries about credit markets on Friday.
New Zealand's benchmark NZSX-50 index was not immune and it closed down 1.6 per cent, or 63.59 points, at 3894.34 on Friday.
The index has fallen for the last six sessions to a fresh eight-month low, and having lost 9.88 per cent since July 24 is close to the 10 per cent fall considered a market "correction".
"We're at the end of a very tumultuous week in world markets and people are saying 'hey, we don't know what's going to happen to the Dow overnight, we've got a lot of volatility out there, let's just square things off and see what happens next week'," said UBS institutional dealer Paul Nicolson.
- NZPA