Fear returned to global equity markets yesterday, as fresh anxiety about the United States economy and the financial health of European banks sparked another round of panic selling from London to Tokyo.
But despite the turbulence, the New Zealand exchange largely shrugged off the volatility, outperforming most other markets.
The NZX-50 index closed down 0.56 per cent, or 18.38 points, at 3267.84.
In comparison, New York's Dow Jones industrial average finished yesterday down 3.68 per cent, while the Nasdaq dropped 5.22 per cent.
London's FTSE 100 index closed down 4.49 per cent yesterday - its biggest single-day loss since early 2009. In Paris, the CAC 40 tumbled 5.48 per cent.
Kevin O'Sullivan, head of financial markets at Auckland's OMFinancial, said it had been a "stellar performance" by New Zealand's benchmark index, considering the steep drops on other exchanges around the world.
Positive financial results from Telecom and Michael Hill International would have helped buoy the NZX-50, he said.
The listed jewellery retailer reported a 32.6 per cent rise in full-year net profit to $34.4 million, while the telco posted adjusted annual earnings of $388 million, a 1.6 per cent increase on the prior year.
Telecom closed up 11.5c at $2.72 last night, and Michael Hill gained 3c to finish at 91c.
Markets across Asia also took a hammering yesterday, with Australia's S&P/ASX200 index finishing the day down 149.3 points, or 3.51 per cent, at 4101.9. Hong Kong's Hang Seng was down 2.38 per cent by mid-trading, while Japan's Nikkei stock average fell 2.51 per cent.
O'Sullivan described the market gains seen this week, prior to yesterday's return to turmoil, as "the eye of the storm".
"It was pretty much the market taking a breather," he said. "And then some new data triggered it off again."
O'Sullivan said data out of Europe on Thursday night were particularly negative, with eurozone construction output down 11.3 per cent in June, year-on-year.
"That was quite shocking," he said. Factory activity in the US Mid-Atlantic region as surveyed by the Philadelphia Federal Reserve Bank plummeted in August, falling to the lowest level since March 2009.
Traders also reacted to a report in the Wall Street Journal that the US Federal Reserve was concerned European banks might be forced to repatriate funds from US subsidiaries in the event of a liquidity shortage.
Westpac senior markets strategist Imre Speizer said markets were concerned that bank funding could become dysfunctional. "Without funding things can't happen and you get chaos ... markets just stop."
The New Zealand dollar fell prey to panic selling yesterday, falling from above US83.26c at 11pm Thursday night to US81.78 at midday yesterday, before recovering ground to reach US82.17 by 5pm.
Speizer said he expected the kiwi to fall to US80c, or possibly even US78c, over the next week.
The kiwi dollar was also likely to drop against the Australian currency, he said, and could fall as low as A78c over the next seven days. The kiwi closed at A79.22c at 5pm yesterday.
* Dow Jones-3.68pc
* FTSE 100-4.49pc