KEY POINTS:
The New Zealand sharemarket yesterday posted its biggest percentage rise this year as the market reacted to a surprise cash rate cut by the Reserve Bank.
The NZX-50 closed up 2.6 per cent or 85.58 points to 3287.23 after Reserve Bank governor Alan Bollard announced a 25 basis points cut to 8 per cent.
The strong performance followed Wednesday's gains which saw the sharemarket rise 57 points or 1.8 per cent.
ASB Securities broker Stephen Wright said the rate cut had resulted in a drop in the New Zealand dollar, benefiting stocks with foreign exposure.
"Because the dollar went down, stocks with foreign exposure got the benefit - Fisher & Paykel was up, so was Rakon. Stocks with overseas business also did well like Mainfreight.
"Generally speaking it was a good day all round."
Fisher & Paykel Healthcare rose 16c to $2.62 while Rakon was also up 16c to $2.75.
Wright said the rate cut was generally good news for the market but there was still negative news to come.
"The reason why the cut was made was because the Reserve Bank is worried about the economic conditions. There still will be general corporate pain with profits," he predicted.
But he said Bollard's indication of further rate cuts to come was a sign thatthe market would recover in the longterm as tougher times for companieseased.
Hamilton Hindin Green adviser James Smalley believed the rate cut had ledsome smaller investors to re-enter the market.
But he would not go as far as to say the market had hit its bottom point as there was still the August reporting season to get through.
"We would like to see the bottom lines of those companies with no nasty surprises first."
Instead he said yesterday's gains could signal the return of a level-headed and circumspect market.
"Markets always move too far one way or the other. But this may see a move to a more balanced viewpoint."
As far as volume went, he said, turnover was reasonable but not massive and the lower turnover suggested buying was not coming from major institutional investors but could be the return of some retail investors driven away earlier.
Smalley said the lower oil price had also been a factor in some share price changes with Air New Zealand benefiting fromthe fall but NZ Oil and Gas being hitby it.
He said the drop in the cash rate meant investors would start looking elsewhere for income as investments in the bank became less attractive.
But Wright predicted it would take some time before burned investors began considering the sharemarket again.
Top stock Telecom was down 3c to end the day on $3.47 while Contact Energy was up 33c to $8.47 and Fletcher Building bounced back 36c to $6.91.
