The New Zealand sharemarket, which finished last year on a record high, ended the first trading day of 2016 down just under 1 per cent, as concerns about world growth sent major markets sharply lower.
Fears about the world's economic growth prospects made their presence felt on international markets on Monday - when the local market was closed for the New Year holiday - after disappointing factory data sparked a major sell-off in Chinese stocks, triggering a new "circuit breaker" mechanism and suspending trading.
Chinese shares were falling again late yesterday with the Shanghai Composite Index trading down 1.3 per cent at 3254.12, having been up earlier in the day.
International news agency Bloomberg said state-controlled funds intervened to support Chinese stocks after Monday's slide. The agency said the China Securities Regulatory Commission also informally asked stock exchanges to tell listed companies that a ban on major shareholders selling stakes would remain valid until new rules were introduced.
The New Zealand market's benchmark index, S&P/NZX 50, finished the day down 46.15 points or 0.7 per cent, at 6278.11, having earlier fallen as low as 6235.20.
Forsyth Barr broker David Price said it was a relatively strong performance after Monday's market holiday.
"I think that we are going to have a year of volatility and here we go, this is the start of it," Price said.
Matt Goodson, managing director of Salt Funds Management, said the pullback in the local market was not surprising given its very strong finish to 2015.
"There was a small sell-off but it wasn't big compared with the big gains made by the market last year, and particularly in the last quarter of 2015 - which was the third strongest quarter since the turn of the century," Goodson said.
The New Zealand sharemarket has performed strongly for the past four years.
"While share prices have gone up, earnings have not gone up by anywhere near the same degree, so the market still feels expensive," he said.
"Factors driving the market continue to be price-momentum and a desire for quality at any price, rather than earnings-based valuations."
I think that we are going to have a year of volatility and here we go, this is the start of it.
Volatility on Chinese sharemarkets was a matter of some concern but the focus was more on where the Chinese economy was heading.
"What the market is more concerned about is the Chinese economy, particularly the outlook for heavy industry and manufacturing," Goodson said.
Australia's S&P/ASX200 index closed down 86.1 points, or 1.63 per cent, at 5184.4.
On Wall Street the Dow Jones industrial average closed down 276.09 points, or 1.58 per cent, to 17,148.94, the S&P 500 lost 31.28 points, or 1.53 per cent, to 2012.66 and the Nasdaq Composite dropped 104.32 points, or 2.08 per cent, to 4903.09. Both the S&P 500 and the Nasdaq had their worst starts to a year since 2001.
The Stoxx Europe 600 Index plunged 2.5 per cent in its worst ever start to a year, with almost 580 stocks falling, while London's FTSE 100 fell 2.4 per cent in its worst new year start since 2000. A devaluation of the Chinese currency also weighed on investor sentiment.
Harbour Asset Management's portfolio manager Shane Solly said economic changes taking place in China could continue to surprise markets this year.
Investors have also been spooked by data showing the fastest contraction in US manufacturing activity in six years.
Geopolitical fears also increased following a rise in tensions between Saudi Arabia and Iran, sparked by the former country's execution of a prominent Shia cleric, Sheikh Nimr Baqr al-Nimr, at the weekend.