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New Zealand investors were biting their fingernails today as global sharemarkets took another mighty dive.

At 4pm the sharemarket was down 2 percent, compounding a 2 percent fall on Friday. The NZSX-50 index dropped to 3428.3 points, its lowest level since March 2006.

Stocks were sold off broadly although top stock Telecom was down just a cent to $3.77 at 3.46pm, albeit its lowest price in more than 15 years.

Today's fall followed on the heels of a crisis of confidence on Wall St on Friday after the US' fifth largest investment bank, Bear Stearns, revealed it needed to seek emergency financing.

The Federal Reserve has moved to help by cutting its discount rate to primary borrowers, while yesterday Bear Stearns was sold at a bargain price to JP Morgan Chase.

Although analysts fear the credit crunch is far from over, economists here say New Zealand -- with its lack of finance stocks and tendency to sit on the sidelines -- could be much worse.

"We're certainly falling less than overseas markets but it has been the case for quite a number of months now ...particularly compared to Australia," said Macquarie Equities investment director Arthur Lim.

However he acknowledged the significance of recent events.

"When you've got such a significant event as one of the major players in the US financial market looking like it could topple over, and the Federal Reserve has had to take precipitous action to stabilise markets, it causes two things: any potential buyers to sit on the sidelines and two: those who are spooked will be looking to get out at any price and we are certainly seeing that today".

If New Zealand was heading into a downturn, its companies were going into it in "reasonably good shape," Mr Lim said.

They were not highly geared as many Australian companies were, and even retailer Briscoes -- which is finding trading tough -- was "sitting on a pile of cash".

Friday's scare sent the S&P 500 index down 2 percent, while the Dow Jones fell 1.6 percent and London's FTSE-100 ended down 1.1 percent.

While the New Zealand sharemarket may be slightly insulated from world events, investors were still struggling to find any cheer today.

With oil and gold prices hitting record highs, there was more bad news from Air NZ, which is hiking its Australasian fares by 3 percent to recover rising fuel costs.

They may also have been spooked by BNZ economist Stephen Toplis who used the "r" word on Friday.

He said the odds of New Zealand going into recession -- two consecutive quarters of easing economic growth -- was greater than 50 percent.

"The fact of the matter is that the New Zealand economy is now very poorly and may well stay that way for some time to come.

"We have become victims of an almost perfect storm which has seen the economy afflicted by a combination of a global credit crisis, rising commodity prices eroding personal disposable incomes, a weakening international real economy outlook, a housing market slump, very tight monetary conditions and a drought."

Finance Minister Michael Cullen avoided talking about recession on Friday but acknowledged New Zealand could not expect to be immune from outside forces.

"The reassuring news is that the Government's strong fiscal management means that we are well prepared for any deterioration in the domestic economy -- we will not have to cut the level of superannuation like former finance Minister Bill English did in the slowdown of the late 1990s."

But NZ Stock Exchange chief executive Mark Weldon said it was time to lower local interest rates to avoid the risk of recession.

He said if that the US Federal Reserve cut interest rates another 50 or 75 basis points on Tuesday, the gap with New Zealand's interest rates would be an "unsustainable" level of more than 6 percent.

Wellington Chamber of Commerce chief executive Charles Finny, also hoped the Reserve Bank would start cutting interest rates by the end of the year.

He did not think New Zealand's economic position was "nearly as dire" as that of the United States, because its major trading partner Australia was growing reasonably well, as was China.

Meanwhile, World Bank president Robert Zoellick said that while the US may well be heading into a recession , developing countries were showing little signs of being hurt.

He expected further fallout from the squeeze in credit markets in the US and Europe.

But he felt the impact on developing economies so far was limited, compared with the way emerging markets tumbled domino-style in the 1990s, when Southeast Asia, Russia and Latin America fell into devaluation crises, and in the 1980s.

India and China's growth would slow but would continue to provide an element of balance to the rest of the world.

Back in New Zealand, Arcus Investment Management was less complimentary about New Zealand corporate outlook, saying drought and high costs would drag on earnings .

But Arcus chief economist Rosanna Wozniak also said investors needed to take a long-term perspective.

Ten times during the past 25 years global share prices had fallen by at least 9 percent a month -- the size of the fall in January -- and in most cases the recovery in following years was pronounced.