European debt fears weigh on NZ market

New Zealand shares were pushed sharply lower yesterday in the down-draught from offshore markets spooked by debt problems in European Countries and a soft US jobs number.

The Dow Jones Industrial Average tumbled 2.61 per cent on Thursday, while the tech-heavy Nasdaq dropped a hefty 2.99 per cent and the broad-market Standard & Poor's 500 3.11 per cent.

"Disappointing economic reports added to jitters created by European debt problems," said Scott Marcouiller at Wells Fargo Advisers.

Market tensions intensified after news that some EU countries in addition to Greece were having problems selling bonds and that the cost of insuring their debt was rising.

The prospect of a debt crisis in EU member states raised concerns about a weaker global economic recovery, said analysts.

Also dampening the mood was a report that new claims for US unemployment benefits rose to 480,000 in the week ending January 30, up 8000 from the prior week's upwardly revised 472,000.

The gloom spread through Asia Pacific markets with Japan's benchmark Nikkei 225 down 2.8 per cent, China's Shanghai Composite Index off 1.6 per cent, and Hong Kong's Hang Seng down 3.2 per cent.

Closer to home, the ASX 200 fell 2.3 per cent, while in New Zealand the NZX-50 ended the day 43.95 points or 1.42 per cent lower at 3104.99.

Adviser Nigel Scott of Craigs Investment Partners said the local market had fallen rapidly on opening but the move had been accentuated by the relatively slim turnover.

Excluding off-market trades or crossings, Scott said it looked as though local investors were staying on the sidelines as they waited for reporting season to begin.

"Many companies of course have had their balance sheets repaired so we're now going to look for evidence of earnings growth."

There was little evidence of any influence from offshore investors who hadn't been active in the New Zealand market for some time.

Scott said the selling that did occur yesterday could well be related to investors reorganising their positions to move more from equities into cash.

"People are going back to a little bit of certainty as the sovereign debt issues come up.

"In New Zealand it's hard to get a handle on what's happening in Greece, Portugal, Ireland and Spain but clearly all of those things are showing up in the price of gilts and the slight return to strength in the US dollar."

The US dollar gained against most other currencies on its resurgent status as a safe haven.

The greenback's gains saw the New Zealand dollar sink to its lowest level in months at US68.45c on Thursday night before it closed yesterday at US69.01c.

Westpac markets strategist Imre Speizer said the market response to what was relatively peripheral US jobless claims data was symptomatic of underlying fears about the sustainability of gains made in the market rally since March last year.

"Weekly jobless claims numbers are always watched but they hardly ever elicit a response like that so it tells you there's something else going on in the background.

"The sovereign thing was hovering but there was no big event last night. People are just scared underneath."

He noted the rally had seen considerable cash poured into long positions on equities, commodities and commodity currencies such as the NZ dollar.

"Those investors are sitting there nervously. The action last night shows you get a little thing and the weakest ones throw in the towel."

- ADDITIONAL REPORTING: AGENCIES