Wellington, Sept 17 NZPA - The New Zealand sharemarket opened today's trading slightly lower, as turmoil continued throughout the global financial system.

Shortly after the sharemarket's 10am opening, the benchmark NZSX-50 index was down 6.38 points, or 0.2 percent, to 3220.93, having ended down 2.8 percent yesterday.

O vernight, US stocks clawed back from their biggest drop in seven years on growing optimism that US authorities may finance a rescue of huge insurer American International Group.

The insurer's credit ratings had been downgraded, adding to concern about its ability to raise capital to help weather fast-mounting credit losses.

A report late in the US trading session that the Federal Reserve was considering a loan to AIG pulled the market out of a funk. The market had been lower after the US central bank disappointed investors by opting not to cut interest rates as many expected.

The Dow Jones industrial average rose 1.3 percent to 11,059.02, while the Standard & Poor's 500 Index gained 1.75 percent to 1213.60. The Nasdaq Composite Index was up 1.28 percent at 2207.90.

Also helping the market, oil prices tumbled and ended down nearly 5 percent, dropping for the second day in a row. US crude futures lost $US4.56 ($NZ7.02) to settle at $US91.15 a barrel.

Former Reserve Bank governor Don Brash said the continuing turmoil in international financial markets meant the cost of the extensive offshore borrowing by the New Zealand banking system was likely to be pushed up.

When the Reserve Bank cut its Official Cash Rate last week, by half a percentage point many people had pointed out that would not lead to a significant reduction in mortgage rates, he said.

In the longer term the turmoil in the US was likely to produce a slowdown in the US economy, with other major economies already slowing, meaning demand for New Zealand exports was likely to be reduced.

On the good side, there had been some depreciation of the New Zealand dollar which would help the export sector, Dr Brash told Radio New Zealand.

The banking system in this country was also strong. It was well capitalised and did not have the exposure to sub-prime mortgages that US institutions did.

Also in this country's favour, the Government's fiscal position was good and its debt was low.

"That also puts us in a good place if we have to run a deficit for a few years," he said.

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