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The Reserve Bank's surprise signal that interest rates could fall by the end of the year helped support the sharemarket, which came under pressure from a weaker Australian market.
The New Zealand dollar fell more than US1c, and plunged against the Australian dollar, after central bank governor Alan Bollard gave a clear sign that the Official Cash Rate could fall sooner than expected, despite inflation forecast to rise above the bank's target band.
"I think everyone breathed a sigh of relief when that statement was released," said Grant Williamson of Hamilton Hindin Greene.
"I gauged that the RBNZ is not quite so concerned about inflation, and looking at the effect of these high interest rates on the economy at the moment."
Dr Bollard held the OCR at 8.25 per cent as expected, but painted a grim picture of a weakening economy.
The benchmark NZSX-50 index closed down 1.7 points at 3555.97, on turnover totalling $117.8 million.
Export stocks gained on the back of interest rate cut expectations, led by Fisher & Paykel Healthcare which relies heavily on its US dollar revenue.
F&P Healthcare rose 14c to 248, Pumpkin Patch was up 2c at 171, seafood exporter Sanford rose 20c to 500, and Rakon was up 7c at 326.
Top stock Telecom was down 2c at 391, Fletcher Building gained 4c to 770, Contact Energy lost 14c to 891 amid concerns about the country's power supply, Sky City fell 8c to 366, and Infratil was down a cent at 220.
Guinness Peat Group, which has a lot of its assets offshore, was up 2c at 158, Air New Zealand rose 2c to 116, The Warehouse gained 3c to 536, and Vector was up 5c at 203.
Freight companies Freightways and Mainfreight rose, gaining 3c to 329 and 10c to 740 respectively.
Kiwi Income Property Trust was down 4c at 122, Tourism Holdings lost 4c to 162, Ebos was down 5c at 475, and NZ Refining lost 6c to 817.
Among dual-listed stocks, Westpac rose 70c to 28.00, AMP jumped 33c to 933, and Lion Nathan fell 5c to 1130.
Australia's S&P/ASX 200 Index was down 0.9 per cent at 5532, and Japan's Nikkei share average was down 0.5 per cent.
Earlier in the US, blue-chip stocks dipped to close at their lowest since mid-April after Federal Reserve chairman Ben Bernanke stoked inflation worries and concerns about more credit losses dogged financial shares.
- NZPA
