$2.4 billion share wipeout

By GEOFF SENESCALL, ROD ORAM and JOHN ARMSTRONG

New Zealand shares led a downward spiral in markets around the world yesterday, prompting a warning from Acting Prime Minister Jim Anderton that economic growth could slow.

And he made it clear that he would be unimpressed if the Reserve Bank hiked interest rates tomorrow, saying: "I am confident wisdom will prevail."

However, the bank's governor, Dr Don Brash, is still expected to raise interest rates by a quarter of a percentage point, despite falling share prices, sliding business confidence and subdued inflation in the first three months of the year.

Prime Minister Helen Clark, Mr Anderton and other ministers were briefed by Dr Brash yesterday on the likely impact of the global stockmarket correction.

Mr Anderton - who is Acting Prime Minister for 10 days after Helen Clark's departure last night for Europe - said the economy had entered a cyclical upswing and it was far too soon to say what effect the fall in share prices would have.

But the steep drop on Wall St meant the United States and the rest of the world were likely to experience at least a mild slowdown in coming months.

"We can predict that it is likely to mean lower growth rates than we would otherwise experience."

As waves of selling swept through world markets, New Zealand got off lighter than some. The NZSE-40 capital index closed down 4.7 per cent on moderate trading volume, compared with falls of 8.5 per cent in Tokyo and Hong Kong.

In line with overseas, technology stocks bore the brunt of the shakeout as some spooked retail investors cashed in their shares. In what one broker described as "orderly carnage," about $2.45 billion was wiped off the value of the local market.

Former market darlings such as Advantage Group and Strathmore, key companies in the stable of entrepreneur Eric Watson, were singled out for selling with their prices slashed by nearly 30 per cent.

Sarah Corkill, of retail broking firm Direct Capital, said many retail investors were simply quitting their technology stocks. "I think they are realising that it is now a risk where as before it was fun."

Tim Preston, managing director of ASB Securities, said the tech sector was experiencing a "crash."

"Everyone knew that people buying tech stocks were playing a reasonably dangerous game because there would be a day of reckoning ... The problem is that I don't think anyone expected it to be as swift and as savage as it has been."

The turmoil claimed its first victim yesterday when Force Corp, the cinema group, aborted its takeover of ihug, the Internet service provider owned by the Wood family.

Other examples of failed deals and abandoned share issues were seen in markets around the world.

Tech stocks aside, the wider market held up reasonably well, curbing the losses. Market leaders such as Lion Nathan, Contact Energy and Carter Holt Harvey - out of favour in the grab for tech stocks - suffered only mild falls.

Brokers predicted that New Zealand today would again take its cue from the US market, which opened for trade at 1 am NZ time.

Views were mixed on how Wall St would go overnight. But lower prices of US stocks trading abroad suggested that Wall St had further to fall before concerted buying stabilised prices.

Nervousness about how trading would go over the next few days saw only selected buying of New Zealand stocks by larger fund managers and institutions looking for bargains.

Most preferred to keep their powder dry in case there were further falls, said James Snell, of Credit Suisse First Boston.

While the common view among brokers was that the New Zealand market was cheap - having largely missed out of the bull rally on Wall St - the local bourse would not buck the trend if the US market fell out of bed again.