KEY POINTS:
The sharemarket hit a new 16-month low today after Wall Street took another hit and local investors stood on the sidelines.
US stocks fell heavily after credit rating agency Moody's Investors Service cut bond insurer FGIC Corp's "AAA" rating, heightening concern that credit markets will destabilise further.
Stocks were already lower after US Federal Reserve chairman Ben Bernanke said he sees investment banks taking more write-downs on losses from subprime mortgages.
"There's just a tremendous amount of fear about how many more credit market shoes are going to drop. Corporates are being affected, munis (bonds) are impacted," said Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut.
"There's a stench of fear that refuses to break."
Here, the benchmark NZSX-50 index fell to a new low for the year of 3498 but bounced off that to end 40.4 points down, or 1.1 per cent, on 3509.97.
Volumes were light. The market is now down 13 per cent for the year and is 19 per cent below its previous peak in October.
Forsyth Barr broker David Price said the corporate health outlook for New Zealand stocks was weaker, but not too far from expectations.
"There's nothing to mirror the performance of the market. But people hate uncertainty and so they are quite happy to sit on the sidelines."
The New Zealand was being dragged down by offshore markets but failing to bounce when they do.
"The big stocks are where the liquidity is so they have been the hardest hit by the people who are trying to raise cash from offshore."
Mr Price said many stocks were cheap on a yield basis and trading at a discount to assets, but they were likely to stay that way until the uncertainty had blown away.
Market leader Telecom held up well, rising 3c to 408.
No.2 stock Fletcher Building lost 3c to 900 and No 3 Contact Energy dropped 16c to 745.
There were a number of hefty falls. Medical supplies company Ebos fell 19c to 460, Michael Hill International, 10c to 101, Hellaby, 7c to 196.
Lines company Vector lost another 5c to 197 after it dropped 4c yesterday in response to concerns about the sale of its Wellington lines business and the impending refinancing of its debt.
High technology manufacturer Rakon, which yesterday took a 22c hit after lowering its forecast, fell another 22c to 268.
Another exporter, Pumpkin Patch, which shed 19c yesterday to a three-and-a-half year low ahead of its half year result next Wednesday was further punished, down 7c to 160. A year ago it was trading at 479.
Air New Zealand lost 5c to 155 and Auckland Airport 6c to 251 after Australia and the US signed an open skies agreement.
Exchange operator NZX fell 1c to 774 after it reported a 34 per cent increase in annual net profit after tax to $8.7 million.
Allied Farmers, whose finance company Allied Nationside was today forced by the Commerce Commission to repay some overcharged customers, lost 15c to 160.
Fund manger Kingfish, whose director Warren Couillault resigned his board role, lost 8c to 105 and traded as low as 100.
- NZPA