KEY POINTS:
The New Zealand sharemarket opened today's trading slightly lower, as turmoil continued throughout the global financial system. Throughout the day it has remained in positive territory, with the benchmark NZX-50 up 33 points to 3261 - a 1 per cent gain.
Shortly after the sharemarket's 10am opening, the benchmark NZSX-50 index was down 6.38 points, or 0.2 percent, to 3220.93, having ended down 2.8 percent yesterday.
Overnight, US stocks clawed back from their biggest drop in seven years on growing optimism that US authorities may finance a rescue of huge insurer American International Group.
Britain's top share index fell to its lowest close in more than three years, sliding 3.4 per cent as financials fell on concerns over insurer AIG and commodity stocks tracked oil and metal prices lower.
The FTSE 100 closed at 5,025.6 points, down 178.6 or 3.43 per cent.
In Tokyo, the benchmark Nikkei average slid 4.95 per cent to a three-year low, with investors dumping shares across the board after Lehman Brothers' collapse fuelled fears about the US financial system and hit stock markets worldwide.
The Nikkei average shed 605.04 points to end at 11,609.72, its lowest close since July 2005.
US stocks initially fell this morning after the Federal Reserve held its key interest rate steady at 2 per cent.
The cash rate announcement came at about 6.30am (NZT).
Wall St later rallied for a strong finish.
Wall Street had been hoping for a cut as concern about the fate of insurer American International Group mounted, a day after the stock market suffered its worst decline since the aftermath of the Sept. 11 attacks.
The worst financial crisis in decades inflicted its blackest day on world sharemarkets yesterday as Wall St plunged, dragging New Zealand and Asian markets with it.
It followed the carnage on Monday when the US sub-prime crisis claimed America's fourth largest investment bank, the 158-year-old Lehman Brothers.
National Party leader John Key's former employer Merrill Lynch narrowly avoided the same fate by selling itself to the Bank of America, and insurance giant American International Group is also in big trouble.
Market fears now turn to the two remaining independent Wall St investment banks, Goldman Sachs and Morgan Stanley, both to report their financial results - and probably new writedowns - today.
Wall St had its worst session since the September 11, 2001, terror attacks.
In New Zealand, the ANZ bank's head of markets, John Body, said: "It's too early for anybody to really understand the end game of this.
"In a way, we're very much in the eye of the hurricane at the moment. You're not going to know how much damage has been caused until the hurricane passes and you can look up and see what's left standing."
Finance Minister Michael Cullen yesterday said New Zealand's banks were healthy.
"The important thing from our perspective is that our banking and financial system by and large is strong," he said.
"Particularly the banking part of that system is very strong - we don't need to contemplate what's happened with Lehman Brothers and Merrill Lynch within New Zealand."
The most likely effect for New Zealand was that world economic growth forecasts would be lowered over the next year or two and that would affect the country's growth, he said.
Dr Cullen pointed out - for the second day running - that Mr Key's credentials as a high-flyer at Merrill Lynch didn't look so impressive now the investment bank had "gone down".
"I'm saying that he's got a short-term profit maximising mentality, and that's what's brought Merrill Lynch and Lehman Brothers and these other businesses to their knees," he said.
Mr Key said only that Dr Cullen's comments were "desperate, absurd and pitiful".
National's finance spokesman Bill English yesterday warned the "significant" international events created uncertainty over whether New Zealand would have a quick recovery from the recession.
Mr English - who two days ago indicated his party was still considering tax cuts worth $50 a week - said the instability meant the election campaign was "not a time for reckless promises".
"The New Zealand economy is in recession, and fiscal initiatives must be targeted at strengthening the economy for the future," Mr English said.
Mr Key later told the Herald that a $50-a-week tax cut was not a reckless spending promise.
"When you see our tax plan you'll see that we've been conservative in the way we've put it together," he said.
The Government's books will be opened in about three weeks for a pre-election update, and it is expected that forecasts will have deteriorated markedly since the May Budget.
Many had hoped the fast-growing Asian economies including China and India would provide the impetus to keep world growth on track.
But as Asian sharemarkets yesterday followed Wall St, and central banks in the region pumped huge amounts of cash into their financial systems to keep them from seizing up, the Asian Development Bank poured cold water on those hopes.
"Uncoupling is a myth," ADB chief economist Ifzal Ali said, referring to the idea that Asian economies can thrive without the US and Europe.
Germany's Economy Minister, Michael Glos, said Lehman's collapse could seriously harm Europe's biggest economy.
"We hope we don't see a crisis which pushes the global economy to the brink of ruin," he said.
Market pundits fear that as banks' borrowing costs soar because of the uncertainty over the effect of the Lehman collapse, lending terms will become even more unfavourable, leading to severe economic fallout.
- ADDITIONAL REPORTING BY AGENCIES
