KEY POINTS:
The sharemarket hit its lowest point in a year yesterday. The benchmark NZSX-50 index fell 20.90 points or 0.61 per cent to close at 3404.55.
The scene was set in the first 20 minutes of trading, with top-50 stocks slipping 7.9 points or 0.23 per cent to 3417.53.
The plunge followed Wednesday's losses on Wall St, where financial sector stocks took a beating after a prominent analyst said bank profits would take longer than expected to recover from the US housing slump.
All three major US stock indices were down, with bank stocks dropping across the board after Oppenheimer & Co analyst Meredith Whitney lowered her first-quarter profit forecasts for Citigroup, Bank of America Corp, JPMorgan Chase & Co, and Wachovia Corp.
Surging oil prices and falling orders for US-made manufactured goods made matters worse by reviving fears of a US recession.
But the NZX-50's woes were more about local conditions than the overnight slump on Wall St, a broker said.
ABN Amro Craigs broker Nigel Scott said high interest rates and a historically high New Zealand dollar were making fixed interest issues and overseas investments more attractive than markets.
"The market is competing with fixed interest issues. We've just had the BNZ issue close and the ANZ issue opens for another couple of weeks. Prior to that was the Bay of Plenty Regional Council."
Scott said continuing uncertainty in the overseas markets was keeping investors cautious. But the biggest factor in New Zealand was our high domestic cash rate - the highest in the OECD.
"New Zealand investors have been on the back foot since last August," he said.
"Investors at the moment are still receiving high returns out of fixed interest and the catalyst for switching hasn't changed yet because domestic interest rates remain high. That's the key."
Other factors for the slump included rallying Australian stocks and a poor outlook for the domestic economy.
"Australian owners of equity are maybe doing a little bit more selling than buying in New Zealand at the moment, now that the Australia market has come back a fair way."
A poor consumer outlook, high inflation, the drought and the high-profile collapses of companies like Blue Chip would add to investor caution.
New Zealand stocks weren't the only ones to fall yesterday. Japan's Nikkei average fell 0.8 per cent yesterday and Australia's benchmark index was down 0.2 per cent at 5369.
DROPPING
* New Zealand's benchmark NZSX-50 index fell 20.90 points or 0.61 per cent to close at 3404.55.
* All of the top 10 stocks that were traded fell expect Kiwi Income Property Trust, up 2c to 1.19.
* Top stock Telecom was down 4c at $3.78, Fletcher Building fell 14c to $8.34 and Contact Energy was down 6c at $8.00.
* SkyCity hit a five-year low of $3.48.
* Fisher & Paykel Appliances fell 8c to a 5 1/2-year low of $2.30.
