NZ dollar plunges again as world share prices continue slide

By NZPA

Friday 2nd March 2007

The New Zealand dollar took its second big dive of the week overnight as a fall on world sharemarkets picked up pace again.

Investors in New Zealand companies will again be nervously watching the local stock exchange when it opens at 10am.

Yesterday the NZX had regained some lost ground after the NZXS-50 index ended 1.5% down on Wednesday.

But overnight risky high-yielding investments funded by borrowing the yen continued to lose favour.

Among those investments are the carry trades which include investors borrowing low interest rate yen and then investing that in high interest rate currencies such as the NZ dollar.

The NZ dollar's first fall this week started around 7pm Tuesday when the kiwi was buying more than US71c. It stabilised on Wednesday but plunged again from around 10pm last night when it was near US70.30c. At 7am today the kiwi was below US69.20c.

Against the yen, the kiwi had been at 85.50 before the first dive, and at 83.00 before the second. At 7am it was buying 81.30.

The worldwide volatility started on Tuesday with a 9% fall on the Shanghai Composite Index, its biggest drop in a decade, before it rebounded 4% on Wednesday, then ending its latest session 3% lower.

The fall in China and concerns about the US housing market drove US blue chips on Tuesday to their biggest one-day drop since the September 11, 2001, attacks.

Part way through Thursday trading, US stocks were down modestly, paring losses after surprisingly strong US manufacturing data brightened prospects for the world's largest economy.

The FTSEurofirst index of top European shares finished at 2-1/2 month lows, down 0.87% to 1469.02. The Nikkei 225 index finished 0.86% lower, at 17,453.51.

Britain's leading share index notched up a third day of losses on Thursday, ending 0.9% lower having shed 5% in three days.

Emerging markets, a favourite asset group purchased with borrowed yen, were also hit with stock markets in Mexico and Brazil down 2% and 0.6%, respectively.

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