KEY POINTS:
A 9 per cent plunge in Contact Energy shares after the company issued a profit downgrade helped push the sharemarket down more than 1 per cent.
But the New Zealand market fared better than those around the region, which slumped on growing concerns about the world economic downturn.
The NZSX-50 closed down 38.49 points, or 1.4 per cent, at 2709.48 on turnover totalling $89.5 million.
Contact Energy led the fall, down 69c, or 9.39 per cent, to 666 after announcing it expected underlying earnings after tax for the current financial year to be down 20 to 23 per cent.
However, the index would have lost more ground without Telecom's 3 per cent, or 8c, rise to 242.
"It's a yield stock in a declining interest environment," Stephen Wright of ASB Securities said.
"We're pretty certain that the Reserve Bank's going to cut interest rates by 100 basis points...and Telecom has suggested they want to keep paying 6c a quarter, so it does sit out as a yield situation," Mr Wright said.
Expectations of a large Reserve Bank rate cut next week were reinforced by today's news of a fall in the consumers' price inflation rate, down 0.5 per cent in the December quarter to an annual rate of 3.4 per cent, down from an 18-year high of 5.1 per cent in the September quarter.
Top stocks were generally mixed, with Fletcher Building down 5c at 580, Auckland Airport off 5c at 175, Fisher & Paykel Appliances down 2c at 130, Sky City flat at 309, F&P Healthcare up 3c at 323, and Sky TV up 4c at 389.
Infratil was down 5c at 158 following news that chief executive Lloyd Morrison was stepping down for a period of medical leave, after being diagnosed with a form of leukaemia for which he has started treatment.
Among the larger declines, PGG Wrightson was down 10c at 118, NZX lost 10c to 530, Rakon was off 5c at 110, and Freightways lost 4c to 282.
On the rise, Tourism Holdings was up 2c at 70, Trustpower gained 10c to 720, Port of Tauranga rose 5c to 625, and The Warehouse was up a cent at 371.
Dual-listed stocks were also mixed, with ANZ down 78c at 1700, Westpac off 80c at 1900, Lion Nathan up 20c at 1020, and AMP up 6c at 660.
Australia's S&P/ASX 200 Index was down 3.4 per cent at 3467, while Japan's Nikkei share average was down 2.7 per cent.
The tumble on world sharemarkets came after Royal Bank of Scotland unveiled the biggest loss in UK corporate history on Monday, and after Britain launched a second bank rescue plan that failed to restore confidence in the financial sector.
Wall Street was closed for Martin Luther King Junior holiday on Monday, ahead of Tuesday's inauguration of President-elect Barack Obama when markets will be open.
- NZPA
