Key Points:

New Zealand shares fell for the tenth consecutive day yesterday on the back of continued losses on Wall St.

Investors are increasingly accepting that the United States is headed toward a recession that will choke growth in other economies.

After a 2.5 per cent slump in US stocks on Tuesday, the local benchmark NZX-50 index plunged 2.3 per cent on opening yesterday. It recovered during the day to close 58 points or 1.55 per cent lower at 3752.4. The US fall was blamed on soft consumer spending data and news of losses from banking giant Citibank over the sub-prime mortgage crisis.

Other markets throughout the world were also hit, Australia's ASX200 down 2.7 per cent in early afternoon trade.

The NZX-50 has fallen every day since the year began, dropping 7 per cent and lopping $4.6 billion off the value of the wider market.

Commentators said that after five years of very good returns, the New Zealand sharemarket had become overpriced and was due for a correction, but they added fears of a US recession were bad news for the wider economy here.

"You have to say the risk of a US recession has increased over the last month or two and the risk to the New Zealand economy has increased as well, " said AMP Capital Investors head of equities Guy Elliffe.

"The events that are taking place are of a global nature and what a lot of people are underestimating is how much impact that will have on New Zealand as well," said economist Shamubeel Eaqub of Goldman Sachs JBWere.

When equity markets plunged last year as a result of problems in the US home lending and wider financial markets, many commentators put faith in the theory that the global economy was now largely "decoupled" from the US. They believed the economic momentum from Asia, particularly China and India, would take up the slack if the US faltered. That belief appears to be fast fading.

"It's silly to say that the biggest consumer economy in the world will slow and nothing will happen to global growth," said Mr Eaqub, who predicted a mild US recession. "We think that economic growth in other countries, including China and Asia more generally, will moderate from current levels, and Europe is also slowing. I think it's fair to say we're seeing a fairly synchronised downturn."

Paul Glass of Brook Asset Management said the outlook for the New Zealand economy was "pretty tough".

He said the losses in any markets were to be expected after years of strong gains, "and it's our expectation that that'll happen in the housing market as well".

"I'm not saying the housing correction will be anything like this (decline in share prices) but house prices are 30 to 40 per cent overvalued."