MARKET UPDATE: Stocks rise a second day on Fed rate cut

Wednesday 17th December 2008

New Zealand stocks rose, sending the NZX 50 Index up for a second day, as the US Federal Reserve cut its target rate to as low as zero and said it will use "all available tools" to revive growth in the world's biggest economy.

The NZX 50 gained 20.486, or 0.8%, to 2715.57, its second daily advance of that magnitude. Within the index, 20 stocks gained, 10 fell and 20 were unchanged. Insurer Tower Ltd. rose 5.2% to $1.42, leading the index higher, and Rakon Ltd. advanced 3.6% to $1.45.

The gain in local stocks follows a rally on Wall Street post the Fed's statement, sending the Standard & Poor's 500 Index up 5% and the Dow Jones Industrial Average up 4.2%. Tech stocks also jumped, with the Nasdaq Composite gaining 5.4%. New Zealand's benchmark index has fallen 34% this year.

"The reaction has been a positive for equity markets - I think it will help, but it's no cure-all, there's no quick fix," said Cameron Bagrie, chief economist at ANZ National Bank.

"Don't get caught in the hype - policy makers are pulling out all the stops to attach the bungy cord," he said. "We're facing challenging times."

Fletcher Building, which owns the US-based laminates business Formica, rose 2% to $6.05 and has gained 5% in the past month. Tourism Holdings rose 1.6% to 62 cents after saying it has a conditional agreement to sell its 49% shareholdings in InterCity Holdings Limited for $9.5 million to its joint venture partners. The company said it will book a loss on the sale of $3.7 million on the sale.

Michael Hill International, which is reorganizing its units to extend its shift to Australia and gain tax benefits, rose 3.3% to 63b cents.

PGG Wrightson, the nation's biggest rural services company, slipped 0.6% to $1.59, after cutting its profit forecast, citing a loss at its real estate business, the economic downturn and a writedown of its stake in NZ Farming Systems Uruguay. Profit in the year ending June 30 is likely to be in $39-$45 million range, down from the $46-$51 million forecast range it gave shareholders at their annual meeting in October.

NZ Farming Systems Uruguay fell 2.6% to 76 cents after Wrightson said it will write down its 11% stake in the company. In October, NZ Farming Systems said global financial turmoil had forced it to postpone capital raising to fund its expansion.

New Zealand Oil & Gas fell 0.8% to $1.32 after crude oil for January delivery fell 1.7% to US$43.74 a barrel on the New York Mercantile Exchange. Earlier today, NZOG said it had acquired 5.77% of Pan Pacific Petroleum, increasing its exposure to the Tui oil field.

The government is scheduled tomorrow to release its budget update, which is expected to show a deteriorating position in the wake of a local recession and ongoing worldwide slump.

Bagrie predicts the central bank will cut the official cash rate to below 4% next year from 5% currently.

"We're in a tough economic climate and there will be pressure through 2009," he said.

By Jonathan Underhill

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