KEY POINTS:
New Zealand stocks will remain at the mercy of US market volatility for the foreseeable future, despite the start of a domestic reporting season that is expected to deliver reasonable news.
The NZX-50 dropped 53.81 points, or 1.46 per cent, to 3636.20 yesterday, as it played catch-up after two days of falling world markets.
However, brokers said the Kiwi market was sheltered by the Waitangi Day public holiday and things could have been much worse.
US markets nosedived around 3 per cent overnight on Tuesday, the biggest one-day fall on Wall St for 11 months, after a report showing the services sector of the US economy contracted in January for the first time in nearly five years - yet more evidence that the US faces a serious recession.
On Wednesday night the US markets fell around half a per cent after Federal Reserve officials cast doubt on the outlook for more interest rate cuts.
Yesterday's fall in the NZX-50 was its biggest since January 16 and takes the market to around 10 per cent down for the year.
The Australian ASX-200 was down 3.17 per cent on Wednesday and just 12.7 points at 5596.7 yesterday.
Broker Grant Williamson of Hamilton Hindin Greene said it was mainly Kiwi blue chip stocks which came under pressure, in particular Fletcher Building which finished the day down 29c at $9.53.
This was despite expectations of a solid interim result from the company next week. "Investors in the market are concerned that the downturn in the residential housing market will start to bite on company earnings going forward," Williamson said. "That's also happening in the US and Fletcher has reasonable exposure there with Formica. We're tipping a very solid first half result but it will be very interesting to see what the directors have to say going forward."
Telecom, which kicks off the reporting season this morning, finished unchanged at $4.10. It is expected to report a half-year result 25 per cent down on the same period last year.
"The market's really just waiting to see what that result's going to be like, and once again directors' comments going forward is probably what the market will mostly concentrate on there," Williamson said.
Ian Waddell of Waddell Johnson McCarthy believed some stocks such as Fletcher Building and GPG - down 5c to $1.39 - had been oversold, and it was now "genuinely a buyer's market".
"I still don't believe this is a bear market, I still believe it's a correction.
"It bottomed on 22 January [when it hit 3607], bounced and formed a bit of a base so we haven't touched those lows again."
Stephen Wright of ASB Securities agreed some stocks had been oversold.
"But sentiment is just so negative, or cautious at the very best. The only reason it varies from one stock to another is just by liquidity.
"People can get out of Fletchers because there's always buyers, albeit at a price." He said it was a "stroke of luck" that Telecom was not down or the market would have been pushed down further.
The market was expecting some reasonable results in the reporting season, such as Air New Zealand, Fletcher Building and NZX.
"But you can't do much about negative sentiment. The high dollar is affecting some stocks; talk of economic downturn is affecting others; just complete caution or negative sentiment is affecting just about everything."
Williamson also said the reporting season would show some stocks had been oversold, and he was expecting a bounce as the days wore on. But all eyes remained on the American market.
"If that continues to weaken we won't see too much upside in any of the Australasian markets.
"There's not a lot of domestic news and therefore investors are concentrating completely on what's happening in America at the moment."