KEY POINTS:
The local stock market will be braced for heavy selling today as investors respond to Friday's big falls on Wall Street and yesterday's heavy losses throughout Asia and Australia.
UK markets also dropped sharply in early trading last night (NZ time), shedding almost 2 per cent in the
first hour.
Last week local stocks held their ground despite big losses on Wall Street.
The NZX-50 rose by one quarter of a percentage point last week compared with the Dow Jones, which shed more than 4 per cent in the week marking 20 years since the Black Monday crash of 1987. But heavy selling in Australia yesterday has set an ominous tone for the start of the short week.
The ASX-200 index had its biggest fall in two months - shedding 1.92 per cent - as US woes heightened concern about financial markets and the economy.
Macquarie Bank and the big mining stocks led the decline.
Macquarie, Australia's largest investment bank, lost A$3.37 ($4), or 4.1 per cent, to A$79.65.
BHP Billiton dropped 3.1 per cent to A$45.63. Rio Tinto Group declined 3.8 per cent to A$105.39. Westfield Group, which owns 59 shopping malls in the US, declined 40c, or 1.9 per cent, to A$21.24.
James Hardie Industries, the biggest seller of home siding in the US, slid 18c, or 2.5 per cent, to A$7.
Asian markets followed the Australian lead yesterday with Hong Kong, Tokyo, South Korea and the Philippines all posting big falls.
On Friday US stocks had their biggest decline in two months. Citigroup, Bank of America and JPMorgan Chase led financial shares to their worst week since 2002 after Wachovia said loan defaults cut profit.
The US dollar also hit a record low versus the euro and other currencies yesterday following the tumble in US stocks and the apparent indifference of Group of Seven finance officials to recent dollar weakness as a cue to dump the US currency.
Group of Seven finance ministers also said record-high oil prices and weakness in the US housing sector may stunt economic growth.
"I would still be more worried about the US housing slump," said Geoff Lewis, Hong Kong-based head of investment services at JF Asset Management.
Weakness in US stocks on Friday, when the Dow Jones industrial average and the Standard & Poor's 500 posted their worst daily percentage drops in two months, helped push the dollar to a record low against a basket of currencies.
At the same time, struggling equities in Asia shaved demand for risky assets, supporting the yen as investors unwound more trades in which they sell yen for high-yielding currencies.
"Last week's drop in New York reconfirmed that the sub-prime problem is at the heart of problems for the market," said Norihiro Fujito, a senior strategist at Mitsubishi UFJ Securities in Tokyo.
