KEY POINTS:
Sharemarkets around the Asia-Pacific region bounced back after taking big hits in early trading yesterday as they reeled on the shock news of the failure of the US$700 billion US bailout plan.
The plan's rejection by US lawmakers prompted the biggest ever drop on Wall St's Dow Jones
index.
The NZX-50 closed down 98.3 points, or 3.08 per cent, at 3090.22 after a plunge of 4.65 per cent took within the first 30 minutes of trading. Australia's S&P/ASX-200 index also fell dramatically, dropping 5.3 per cent within half an hour of trading.
But by late afternoon the Australian market had partially recovered to be down 3.7 per cent, prompting the New Zealand market to follow its lead.
The ASX-200 eventually closed down 4.3 per cent at 4600.5.
Hamilton Hindin Greene client adviser James Smalley said while it was still a down day the market had managed to pare back some losses.
"At one stage we were off 5.5 per cent - but we have taken a bit of heart with Australia coming back."
Smalley said bargain hunters had helped prop up the New Zealand market and light trading meant they had pushed it back up without there needing to be a lot of buyers.
The bailout plan's failure to pass through US congress was also expected to put more pressure on the Reserve Bank to cut the official cash rate next month, Smalley said, with investors seeing that as a positive move for equity markets.
Investors had also been buoyed by the US futures market going into positive territory suggesting some believe there will be a bounce back in the US markets overnight.
But ASB Securities NZX-adviser Stephen Wright was cautious over the US futures market and said it was by no means a guarantee that the US markets would rebound.
But New Zealand analysts remained confident the bailout plan would be resurrected.
First New Zealand Capital head of research Barry Lindsay said the perception was that a deal had to be stitched together.
"A deal has to be found. This isn't the end of it that's how I see it. It can't be left to fail because failure has dire consequences."
Lindsay said it was difficult to predict what the markets would hold for the next few days but said: "I would probably err on the side of optimism that we will see a little bit of improvement. It's hard to judge the short term direction of the markets - they are always uncertain and the level of uncertainty has reached even higher levels."
Smalley said the general direction of the New Zealand market was likely to be set by overseas bourses over the next few days as investors awaited further news out of the US in the hope that a bailout plan will eventually be nutted out.
"The bounce back was buyers getting back into the markets thinking it may be a bit oversold and in the recognition that a deal will be reached eventually."
In Japan, the benchmark Nikkei stock 225 index fell 544.54 points, or 4.64 per cent, to end morning trade at 11,199.07 on the Tokyo Stock Exchange, hitting the lowest level since June 2005. It ended up down 4.1 per cent at 11,259.86.
Hong Kong share prices opened down 5.6 per cent in early trading.
The local sharemarket plunges came after the worst ever one day drop on the Dow Jones. The Dow Jones industrial average lost 777 points, dropping close to 7 per cent and easily beating the 684 points it lost on the first day of trading after the September 11, 2001, terrorist attacks.
Financial Times investment editor John Authers described the fallout from the failed bailout as the worst day for Wall St at least since the Black Monday market crash of October 1987.
Initial trading in the US saw US$1.1 trillion knocked off the value of the capital markets.
Industry players also expressed their shock at the market's reaction to the bail-out plan failure.
"This is brutal," said Marc Groz, chief executive of Topos, a quant hedge fund.
The New York Times said the "stunning defeat" of the proposal had "lowered a fog of uncertainty over economies around the globe".
