NZ stock boom at mercy of US rates

By DITA DE BONI

Hopes of a surge in Australian and New Zealand share prices may be quashed by fears that the United States Federal Reserve will raise interest rates to steady an economy flirting with inflation.

Those fears stopped the Dow Jones bull in its tracks after several Asian markets had celebrated the arrival of the bug-free millennium with strong gains.

The same worries rolled into Australia yesterday, where the first trading day of the year saw the All-Ords retreat nearly 1 per cent.

Late last night, London's FTSE-100 index had dropped 200 points or 3 per cent by mid-session as interest rate fears dominated trading.

The New Zealand Stock Exchange opens today, with many brokers picking a good year for a traditionally undervalued market. However, brokers dragged away from their holidays yesterday by the Business Herald were cautious about the trend this week.

JB Were broker Guy Hedley said the market had an underlying strength that might drive it apart from other markets, including Australia.

"The New Zealand market is undervalued, relative to other markets, so we would expect it would still be catching up," he said.

"There was strong underlying tone leading up to Christmas, and I have a gut feeling the market will continue to firm. We're forecasting strong growth."

Mr Hedley said that, as with international markets, there would be no Y2K problems at the Stock Exchange when trading resumed today.

"The NZSE was Y2K compliant a long time ago."

Broker Arthur Lim of Ord Minnett said that while "all evidence points to an upswing" in the New Zealand market, it would take its cue from US and European markets which traded overnight.

"We won't be immune to what is happening offshore, but I think the overall trend will be upwards."

Mr Lim said few had picked a drop in New York and Australia, although he thought the falls there, apart from interest rate fears, were because of "Y2K relief," with investors selling the fact after buying the widely rumoured non-event.

He said New Zealand would be attracting funds into the country in 2000 based on a perception overseas that it was a "commodity-based economy on an upswing."

Not all indices were negative. Mining stocks firmed in Australia on expectations that metal prices will climb this year. BHP reached a record $A20.73 before easing back to $A20.70 and Rio Tinto closed at a record $A33.30.

In Japan the Nikkei 225 gained a few points to close at 19,002 in a half day's trade. Earlier, the technology-rich Nasdaq index in New York had wavered before being carried up by internet stocks.

The Dow Jones index plunged 139.61 points, or 1.21 per cent, to 11,357.51 at close of trading Monday, after influential US investment strategist Byron Wien said the Federal Reserve would probably raise interest rates by more than 100 basis points by year-end to slow the economy.

Meanwhile, both the Australian and New Zealand dollars held on to most of the gains they had made in offshore trading on Monday, the aussie closing just under 66USc at 65.80 and the kiwi at 52.50USc last evening.