Police will remain in Foxton overnight following reports of gunshots in the small Manawatu town.
In a statement, a police spokesperson said about 11pm that police were speaking with two people.
Police earlier said two people were in custody, but that was not the case, the spokesperson said.
"The individuals have not been arrested and are fully cooperating with police."
The Armed Offenders Squad and dog units were deployed to help find people of interest and a number of addresses had been cleared.
"No one has been located with injuries but police are continuing to make enquiries.
A section of Cook Street remains closed to motorists while a small cordon remains in place."
Other cordons had been lifted and roads were clear for traffic, the spokesperson said.
Scene guards would remain in place overnight at a Cook Street address, ahead of a scene examination planned for tomorrow morning.
Earlier, Donald Evans, who lives in Main St, described hearing a "big bang".
He likened it more to the sound of an explosion than gunshots.
"I thought it was another earthquake coming."
He could see people moving around outside, but was staying inside, as police had instructed residents.
Foxton Hotel owner Bob Hemmingson also heard loud noise, but was unable to describe it.
About 9pm he could see two police officers 30 metres away from the hotel, one of whom was armed.
The officers were talking to two people who appeared to be members of the Nomads gang, and one of the people had just got into a police car.
Immediately after the noise there was "a bit of rushing around in cars" by people he believed were members of the Nomads, but it was soon quiet, Hemmingson said.
Police urged anyone who witnessed the incident or who has any information to contact
Palmerston North Police on (06) 351 3600.
Alternatively, information can be provided anonymously to Crimestoppers on 0800 555 111.