KEY POINTS:
Brokers were buoyed as New Zealand stocks hit positive territory for the second day in a row yesterday but warn the market will continue to be unsettled by woes in the United States financial sector.
The NZX-50 closed up 43.3 points at 3658.6, a 1.18 per cent rise. The index gained 0.23 per cent on Wednesday.
The upswing came after US shares snapped out of a five-day losing streak. The Dow Jones ended the day's trading up nearly 300 points (2.5 per cent) at 12,270.17 - more than 500 points higher than its lowest point during trading.
News that government regulators could step in to bail out ailing bond insurers pushed up trading volumes and prices in the US. The financial health of bond insurers MBIA and Ambac Financial Group has been under scrutiny by rating agencies due to investments in sub-prime mortgages.
The bond insurers, which insure principal and interest payments on bonds, are facing a situation where risky investments have undermined their ability to pay out.
In a bid to further ease tensions in the world debt market, New York state's insurance regulator has met US banks to discuss raising new capital for the insurers.
"Talk of a package to help bond insurers has kicked up the financial stocks and led to a bit of a US turnaround," said Steven Marsh at Trust Co in Sydney.
"Anything that's going to give the US consumer more confidence is good for stocks like BHP and James Hardie."
Shares in Ambac and MBIA surged 63 per cent and 36 per cent respectively.
The US market also drew support from growing confidence that aggressive interest-rate cuts by the Federal Reserve could help stabilise the economy and support the beleaguered banking sector.
Further rate cuts are possible when the Fed meets next week.
First NZ Capital broker Malcolm Davie said there were indications that regulators globally were taking the health of the financial sector "extremely seriously" and that the actions of the Federal Reserve and insurance market regulators gave a sense of impending stability following an unprecedented January sell-off.
The New Zealand dollar jumped almost US1c from US75.78c to close on US76.28c after the Reserve Bank made its decision to hold interest rates.
However, dealers said the kiwi's rise was attributable to the huge swing in the Dow Jones rather than anything Reserve Bank Governor Alan Bollard said.
Hamilton Hindin Greene's James Smalley said Wednesday's positive sharemarket showing was a "stabilisation day" and investors comfortable with the US guidance were coming back to buy undervalued stock.
"I think we needed a day like yesterday [Wednesday], just mildly up, because buyers were sitting on the sidelines [waiting] for things to settle down," said Smalley.
Improvements across the board indicated New Zealand stocks had got a little bit cheap, he said.
Davie said that with some companies having dividend returns in gross terms well into the double figures, the value opportunities exposed by the sell-off had excited more interest. However, the New Zealand market would continue to weather unsettled trading.
David Le Breton of ASB Securities said: "In markets like ours that are volatile we're likely to see ongoing ups and downs, particularly as some of the big companies in the US continue reporting their earnings and looking at what the outlook holds for them."
Smalley agrees, saying the financial uncertainty in the US will continue to flow through to the New Zealand market.
"One thing sharemarkets don't like is uncertainty in any form and that's been the ongoing scenario for the past three or four months, so until we're able to get a handle on the problems in the financial sector in the US there is going to be continued uncertainty,"
Smalley adds that the local reporting season will give investors a clearer picture of how far the underlying fundamentals of companies has been distanced from the share price.
- Additional reporting: agencies
Around the world
* New Zealand: NZX-50 up 1.18 per cent
* Australia: ASX-200 up 3.11 per cent
* Japan: Nikkei up 2.1 per cent
* Hong Kong: Hang Seng up 3.1 per cent
* US: Dow Jones up 2.5 per cent
* UK: FTSE 100 down 2.3 per cent
Rescue attempts
World markets have finally begun to rally after a series of interventions by US officials:
* January 18: President George W. Bush announces a US$150 million ($195 million) package of tax cuts to put cash back in the pockets of consumers.
* January 22: The US Federal Reserve slashes the official interest rate by 75 basis points to 3.5 per cent.
* Yesterday: Speculation the US Government is puting together a rescue package for ailing bond insurers sparks a late surge on Wall St.
* January 29/30: The Federal Reserve is scheduled to make another call on interest rates. The markets will be hoping for another cut.
