6 Jun 2013

NZ shares recover from sharp falls

9:34 pm on 6 June 2013

New Zealand shares have recovered from sharp falls on Thursday, after major world markets dropped to their lowest levels in six weeks.

The NZX dropped more than 1% in heavy selling by foreign shareholders on Thursday morning.

Stocks markets around the world had earlier slipped.

European markets dropped back after data showed business activity in the euro zone eased in May and on separate confirmation that the region's economy contracted in the first quarter, Reuters reports.

The Dow Jones in New York fell 1.4% as investors worried that the Federal Reserve may begin to scale back its economic stimulus programme while the economy is still sluggish.

Analyst Grant Williamson, director at Hamilton Hinden Greene, says fall on the local market is a much-needed correction following a long period of strong rises.

"I think what we're seeing as well is a fair degree of foreign selling in the market and that follows some weakness in the New Zealand dollar."

Mr Williamson says there is quite a bit of profit-taking but no fundamental change to the market.

He says the recent listing of Mighty River Power has helped boost the volume and value of shares traded in the past month.

The total value of shares traded on the NZX has risen 92%, and total trades 29%, compared with the same month last year.

Dollar weakens

The New Zealand dollar fell to its weakest level in nine months on Thursday morning.

The kiwi fell to US79.28 cents, its weakest level since September, and rebounded only slightly to about US79.35 cents shortly after midday.

Westpac market strategist Imre Speizer says the kiwi has been weakening against its US counterpart since the beginning of May.

Mr Speizer says this is being driven by positive US dollar sentiment, because some in the market believe the Federal Reserve will start unwinding its stimulus programmes sometime this year. He thinks weakness in the New Zealand-US exchange rate will persist.