KEY POINTS:
The sharemarket rebounded from Monday's five-month low yesterday - again taking its lead from Wall St.
The benchmark NZSX50 index closed 61 points or 1.5 per cent higher at 4136, more than recouping yesterday's 1.2 per cent loss.
"It's a nice broad-based bounce by most of the large
cap stocks which affects the index," said Hamilton, Hindin, Greene broker James Smalley.
"It's not surprising given what transpired on the Dow Jones last night and the good follow-through in Australia as well."
The US index leaped more than 2 per cent ahead of a Federal Reserve meeting on interest rates.
The Nasdaq and Standard & Poor's 500 also ended sharply higher as investor confidence re-emerged despite troubles in the US housing and mortgage markets.
Smalley said it was difficult to say who was buying local stocks because market operator New Zealand Exchange last month implemented anonymous trading.
From a New Zealand perspective, a feature of the volatility in recent days and earlier this year when the Chinese sharemarkets slumped was the way the local market closely followed overseas movements.
The NZSX has been the best performing equity market in the developed world over the last five years and in that time more often than not shrugged off negative sentiment from overseas as it marched higher.
Smalley said the closer correlation between the local and overseas markets now was probably a result of relatively high prices here.
"The more toppy a market looks, perhaps the more susceptible it is to overseas influences."
"If you own a stock that is doing well, growing earnings in a good environment you're not going sell it just because the Dow's dropped 150 points.
"But if you've got a stock that might be starting to look fully valued, with a downbeat outlook for the economy, when you have the Dow drop a couple of hundred points, people maybe think now's the time to cash in."
That's a view echoed by NZX head of markets Geoff Brown who said the overall price to earnings ratio of companies on the NZSX was the highest in living memory. "A market like that is more vulnerable."
While the current corporate reporting season had so far produced results that, on the face of it, met market expectations, there had been some commentary that was more cautious than anticipated.
Meanwhile, Brown said the recent roller-coaster ride had boosted turnover on the NZX's markets in July.
"If you looked across the world, the increased volatility in markets has seen marked increases in volumes and value traded. That was reflected in what we saw here in New Zealand.
Despite that volatility emerging during just the last three or four sessions of July, it still saw average daily trade rise to $154 million, up 15 per cent on the same month last year.
Brown expected August's figures would also benefit from the recent turmoil.
However, the so-called "credit crunch" that has emerged as a result of the US sub-prime problems would likely curb some takeover activity as finance for the largely debt-funded deals became more costly.
Nevertheless, Brown was confident there was plenty of money available for investment in coming initial public offers and secondary capital raisings, which were continuing at a robust pace.
Total capital raised on NZX's markets year to date at almost $3 billion was 38 per cent ahead of the same time last year.