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The New Zealand sharemarket followed US and Australian markets lower on concerns about the US plan to bail out its ailing financial institutions, a sharp increase in oil prices and the dampening effect of emergency bans on short selling.
As the big bailout was debated in the US
Congress, divisions between the Bush Administration's proposal and the demands of the Democrats spooked markets.
The NZX-50 was down 27.53 points, or 0.85 per cent, to 3228.19 after Wall St's Dow fell 3.27 per cent and the S&P 500 fell 3.8 per cent.
Oil posted its biggest one day price rise in history, gaining US$16.37 to close at US$120.92 a barrel but was easing in Asia last night.
Wall St's losses reversed a big chunk of its gains late last week after the US Government first announced its plan to buy US$700 billion ($1 trillion) in banks' mortgage debt.
"You have to ask how much of last week's rebound was in fact due to the fact they banned short selling, resulting in a huge short squeeze," observed BNZ senior economist Craig Ebert.
A short squeeze results when investors betting stocks will fall are proved wrong and must buy the shares they have already sold at a lower price back at a higher price. If there is significant volume of such buying the extra demand drives prices higher still.
Short selling, which has been blamed for dramatic falls in stock prices for major financial firms in recent months, accounts for a significant amount of turnover in the US and also UK and Australian markets which have also instituted similar temporary bans.
In Australia, the ASX-200 fell 1.9 per cent. Britain's FTSE-100 fell 1.4 per cent in early trading last night. Hong Kong was down 3.9 per cent.
The New Zealand market, where short selling is uncommon, was "holding up pretty well" said Hamilton, Hindin, Greene broker James Smalley. "Certainly there are no signs of big liquidations due to the ongoing uncertainty overseas and a lot of people who might be looking at putting money into the market are sitting on the sidelines."
Meanwhile, credit markets were recovering somewhat from last week's events, said ANZ chief economist Cameron Bagrie.
But Bagrie and Ebert both said upward funding pressures remained which the RBNZ would have to lean against heavily if it wanted local mortgage and other lending rates to ease.
