NZ stocks: Global markets bet on short war but NZ rally muted

12.00pm

The New Zealand sharemarket staged a subdued rally this morning in comparison with global markets which surged as investors bet on a short, sharp war in Iraq.

The London market, led by insurance stocks, rallied 3.4 per cent while the Dow Industrial Average surged 3.6 per cent on Wall Street and the Nasdaq composite index jumped 3.9 per cent.

"They are betting on a quick war," said Forsyth Barr Frater Williams executive director Don Turkington.

Financial markets around the world rallied on the virtual certainty that the US, backed by Britain and Australia, would go to war with Iraq without any UN sanction.

"They are rallying because there is a degree of certainty, they think," Dr Turkington said. "They think there is certainty because President Bush is going ahead. And they think it will be short and sharp.

"All that could be proved wrong, so this volatility is pretty dangerous stuff and I don't think you will see a lot of private client action. These big movements offshore are driven by big international flows," Dr Turkington said.

The top 50 gross index was up 17.88 points, or 1.0 per cent, to 1906.66 at 11.15am while the top 40 capital index was up 16.77 points, or 0.9 per cent, to 1887.69. Turnover was quite solid at $32.8 million.

Dr Turkington said one reason the New Zealand market would not rally strongly was that it lacked a deep derivatives market. Another was that there was no "weight of money" driving things as there was in the United States.

However, he suspected the New Zealand market would rally stronger once the Australian market opened and gave it further direction.

Indicative of the lack of depth to the market was that it took over a quarter of an hour for number 2 stock Carter Holt Harvey to trade, even though there had been good news overnight on pulp prices.

When it did eventually trade, it rose just 1c to 172.

One stock that did respond to the British rally was AMP, which jumped 55 to 815. It has heavy exposure to the British market and a rally there will sooth investor fears about that exposure.

Air New Zealand rallied 2c to 51c following a strong surge in airline stocks worldwide, despite the obvious slowdown in tourism because of the widespread issue of advisories against travelling.

Telecom rose 9c to 427 and dominated the turnover with more than half the total market trade. Australian counterpart Telstra was up 8c to 450.

Tranz Rail, which yesterday said the sale of its Wellington commuter service, Tranz Metro, was back on track, rose 3c to 110.

Among other movers Australian stocks featured, including Westpac NZ, up 24c to 1460, ANZ, up 30c to 1825, Baycorp Advantage, up 2c to 132 and Lion Nathan, up 4c to 565.

Contact Energy was up another 5c to 457 on news that electricity prices are on the rise again and there are increasing fears of a dry winter.

The Warehouse was up 6c to 572, Genesis was up 5c to 125, and Axa was up 7c to 225.

In all there were 19 stocks up and 12 down among the 66 traded.

- NZPA