Relief rally: NZ shares bounce back

NZ shares have bounced back after Monday's savage sell-off

New Zealand shares have bounced back following a savage sell-off yesterday linked to fears about rising interest rates in the United States.

The S&P/NZX 50, which closed down 2.5 per cent last night, was up 0.51 per cent at 7322.78 in early trading this morning.

"It was a relatively aggressive sell-off on the market yesterday but the selling has certainly dried up at this stage," said Grant Williamson, of sharebrokers Hamilton Hindin Greene.

"There's no domestic news to speak of and I think we'll be taking a lead from Australia when its market, which was also hit quite hard, opens."

The local market's bounce follows a relief rally on Wall Street overnight after comments from Federal Reserve Governor Lael Brainard calmed fears that the US central bank may hike rates next week.

"This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation," Brainard said in a speech in Chicago.

Jitters spread through markets late last week after Boston Federal Reserve President Eric Rosengren said the Fed faced risks if it waited too long to hike rates, prompting fears that a hike could take place next week.

Low and even negative interest rates have been lubricating sharemarkets and pushing investors toward stocks, especially those that pay solid dividends.

Those dynamics have helped to perpetuate an equity bull-run now well into its seventh year in New Zealand and the US.

Following Brainard's speech, markets reduced their expectations for a September rate hike to 15 per cent from 24 per cent on Friday and for a December hike to 54.5 per cent from 59.2 per cent, according to Reuters.

Williamson said he wasn't surprised by the magnitude of yesterday's sell-off on the local market.

The NZX 50 - which has rallied strongly this year, gaining 15.8 per cent in the year to date - was one of the hardest-hit markets in Asia.

"I think there were just a number of investors who were looking for an excuse to take profits and the sell-off on Friday on Wall Street was a good enough reason," Williamson said.

He said the outlook for US interest rates could continue to drive market volatility.

"One positive that will probably underpin our market is the Nuplex takeover payout, which is due anytime," Williamson said.

"A significant amount of that is likely to be reinvested in the New Zealand market - that could keep it pretty strong on the buy side."