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MARKET CLOSE: NZ shares fall from 19-month high on Telecom downgrade

Thursday 15th April 2010

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New Zealand shares fell after Telecom cut its earnings forecast and said it may extend job cuts after announcing 200 management jobs will be eliminated. Fletcher Building climbed to a two-year high.

The NZX 50 Index fell 14.39, or 0.4%, from a 19-month high to 3321.12. Within the index, 19 stocks fell, 19 rose and 12 were unchanged. Turnover was $76.5 million.

Telecom fell 2.7% to $2.18, edging nearer to the almost two-decade low close of $2.11 it reached last month. The company today cut its earnings forecasts for the next three years and said it is being forced to comply with regulations over a copper network that don’t fit well into a fibre age.

The shares have weakened under the weight of repeated outages on its XT network and changes to the funding of uneconomic rural services.

Telecom’s reduced guidance “brings it into line with our own and most other forecasts,” said James Lindsay, who helps manage $450 million at Tyndall Investment Management. Telecom is currently “very, very difficult to analyse but there is potential for it to continue to get bad news with fibre to the home. There are a number of downside risks.”

Telstra which this week hosed down reports it has struck a deal with the government over its network, fell 1.4% to $4.12 on the NZX. NZX, the stock exchange operator rushing to roll out derivatives trading, slipped 2.2% to $1.82.

Kathmandu Holdings, the outdoor equipment retailer, declined 2% to $2.50.

Local factors held New Zealand shares back today when equity markets in Asia and across the globe have strengthened on a better-than-expected start to the US earnings season and figures showing China’s economy expanded at a cracking 11.9% pace, year-one-year, in the first quarter.

Fletcher Building, New Zealand’s biggest construction company, rose 1% to $8.53, the highest since May 2008.

Tyndall’s Lindsay said the government’s announcement of a public private partnership to build a 1,000-bed prison in Auckland shows the state “is continuing to spend on infrastructure” and there is “a lot of concrete in a prison” though no certainty yet that Fletcher will win a share.

Fletcher’s gains are a reflection of relatively better news here in New Zealand and the economies around the world, which is lifting equity markets, he said.

Steel & Tube Holdings, which sells steel building products, climbed 1.9% to $2.75. Fisher & Paykel Healthcare, which counts the U.S. as its biggest market for respirators and breathing masks, gained 1.2% to $3.44.

Delegat’s Group, the maker of Oyster Bay wines, fell 1.1% to $1.83 after its 50.1%-owned grape supplier, Oyster Bay Marlborough Vineyards, said weak prices of grapes will result in an operating loss this year, forcing the grower to seek a waiver from its banking covenants. Oyster Bay last traded at $2.

Pan Pacific Petroleum rose 5.3% to 40 cents, leading the index higher, after the price of crude oil gained for a second day on increased U.S. demand for fuel.New York crude touched US$86.21 a barrel during Asia’s day.

Restaurant Brands, the franchise holder for KFC, Pizza Hut and Starbucks Coffee outlets, rose 2.7% to $2.26.

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