Wall St staggers come at bad time

Signs of a faltering Wall St have arrived at the worst possible time for a local market already struggling with the effects of a slowing economy and high dollar, brokers say.

Fears that the bull run on US markets may be at an end were sparked on Friday when the Dow Jones and S&P 500 had their biggest single day fall since March 2003. Brokers were waiting overnight to see if Wall St recovered or fell further.

The NZX-50 yesterday followed the global trend and dropped 1 per cent - in line with falls throughout Asia and Australia.

The negative global sentiment was accentuated in New Zealand by a big sell-off of Telecom shares. Investors continued to punish the phone company in the wake of Friday's announcement that it was writing off half the value of Australian investment AAPT.

Telecom - which accounts for 25 per cent of the NZX-50 by capitalisation - dropped 12c, or 2.1 per cent, to $5.62.

First NZ Capital broker Malcolm Davie said the Telecom weakness had been anticipated. "But it reinforced the weak tone we got from overseas."

The NZX was coming off two impressive years so there was nervousness among investors.

"It's hard to be overly bullish with all the signs that are there - the slowing domestic economy, slumping business confidence and the continued strength of a high dollar."

Davie said with those kinds of issues to deal with, the onset of global weakness was "not ideal".

It was difficult to say how serious the US fall was. The Dow and the S&P 500 had enjoyed a pretty good rally so far this year. In contrast, the NZX had been rather flat.

In the US, two big stocks - GE and Citigroup - disappointed investors with their latest results on Friday. They joined a growing list of companies, including internet search engine Yahoo and computer chip-maker Intel, which have delivered quarterly results below market expectations.

The Dow Jones, S&P 500 and Nasdaq all dropped more than 2 per cent.

Davie said if this was the start of a trend of slower earnings growth in the US then those indices would struggle and there would be implications for the local market.

"It would remove another group of buyers," he said.

"It is hard for the Kiwi market to de-couple entirely when it comes to sentiment against the US and elsewhere. And we, of course, have our own issues."

UBS broker Richard Leggat said the key now was whether or not the fall on Wall St was a one-off or the start of a trend.

If US selling continued for a while then some people would get nervous.

"They take their money out and put it in what they see as a safe place - like the bank."

Market falls
* The NZX dropped yesterday in the wake of Friday's sell-off on Wall St.
* The local fall was accentuated as investors continued to punish Telecom for its writedown of half the value of Australian investment AAPT.
* The NZX dropped 1 per cent yesterday compared with Friday's falls of between 2 and 3 per cent on the US markets.