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NZ Stocks Follow US Rebound As Bailout Hopes Continue

Fuseworks Media
Fuseworks Media

Wellington, Oct 1 NZPA - The New Zealand sharemarket bounced in early trading today after Wall Street had snapped back following its biggest sell-off in years.

The partial rebounds came amid growing expectations that United States lawmakers will salvage a $US700 billion ($NZ1.06 trillion) rescue plan for the financial sector.

Around 10.10am the benchmark NZSX-50 index was up 57.1 points or 1.8 percent to 3147.4.

Yesterday it ended down 98.3 points, or 3.1 percent, having been down more than 4.6 percent earlier in the day.

Despite the rise in US equities, seized-up credit markets where businesses turn to raise money showed no sign of relief in the wake of Congress's defeat of the proposed bailout and purchase of toxic debt.

The recovery in stocks wasn't unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed.

Without a bailout plan in place to absorb soured mortgage debt and other bad loans from battered banks, investors are left wondering what might restore confidence in lending.

Traders on the floor of the New York Stock Exchange, still stunned from Monday's (local time) 777-point rout in the Dow Jones industrial average, warned that the government needs to approve a plan that will sweep away the fears that hobbled the credit markets. While US political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday.

The dollar rallied and US stocks recovered 3 percent after suffering their blackest day in 20 years on Monday as the US House of Representatives rejected the rescue plan.

US stocks also shot up to session highs in late afternoon trading in its latest session, after reports the US Securities and Exchange Commission intends to give guidance that banks should not always measure prices for troubled assets at firesale levels.

At the close, the Dow rose 485.21, or 4.68 percent, to 10,850.66 after falling nearly 7 percent on Monday to its lowest close in nearly three years. It was the largest point drop and 17th largest percentage drop in the blue chip index. The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression.

Broader stock indicators also bounced higher. The Standard & Poor's 500 index recovered 58.34, or 5.27 percent, to 1,164.73, and the Nasdaq composite index rose 98.60, or 4.97 percent, to 2,082.33.

The White House, Treasury Secretary Henry Paulson, congressional leaders and the two candidates hoping to succeed Bush as president, Senators. John McCain and Barack Obama, kept up a steady drumbeat of support for the plan, and around the world markets stabilized.

"There's an overarching belief that at some point this week, whether it's Wednesday or Thursday, we'll get something passed by the House," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

But global money markets remained frozen, and London interbank offered rates shot to record levels, indicating banks were not lending to each other. The rate for overnight dollar loans rose to nearly 6.9 percent from just over 2.5 percent on Monday.

From Dublin to Moscow, the financial crisis was an ominous presence.

Ireland unveiled a blanket guarantee for savings held by its banks, and for the second time in a month Russia briefly shut down its stock markets.

France, Belgium and Luxembourg poured 6.4 billion euros ($NZ13.7 billion) into Franco-Belgian bank Dexia to avoid defaults on its loans, and France promised new bank measures to help savers.

Dutch banking and insurance group Fortis and regional US bank Wachovia succumbed on Monday.

Oil prices swung back above $US100 a barrel following a precipitous plunge a day earlier, on growing hopes the bailout plan will be passed.

The day before, the price of light sweet crude for November delivery fell $US10.52 to settle at $US96.37 -- the second largest drop ever in US dollar terms.

NZPA WGT agencies dw mjd gt

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