MARKET CLOSE: NZ shares fall as ECB weighs on market; Meridian, Westpac, Spark drop

New Zealand shares fell after the European Central Bank disappointed some investors who were expecting a bigger stimulus package, trimming the lure of stocks offering higher yields. Blue-chip stocks Meridian Energy, Westpac Banking Corporation and Spark New Zealand declined.

The S&P/NZX 50 index dropped 30.85 points, or 0.5 percent, to 6094.82, recovering from a week-low during intraday trading. Within the index, 32 stocks fell, 12 rose and six were unchanged. Turnover was $143 million.

The ECB cut its interest rate on deposits, broadened the range of assets accepted in its asset purchase programme and committed to rolling over the stock of debt it had purchased. The move disappointed traders betting on further stimulus for the moribund European economy, drove up the euro and triggered a global selloff in equity markets. In the US, Federal Reserve Bank chair Janet Yellen gave a cautiously upbeat account of the US economy, including an improving labour market, adding to bets the central bank will raise interest rates after its next meeting on Dec. 15-16.

"We've significantly outperformed global markets over the last year, and companies in New Zealand have definitely benefited from lower interest rates," said Shane Solly, director at Harbour Asset Management. "Some of our stocks are very yield sensitive - Spark, Meridian, Mighty River. Those are big names with a high dividend income component. When interest rates start moving around, those stocks get impacted."

The NZX 50 has gained 9.1 percent this year, reaching a record high on Dec. 1 as investors faced with low interest rates on fixed-income securities and tepid rates on offer to retail investors from bank deposits were attracted to the dividend yields available on New Zealand shares. Traders are betting Reserve Bank governor Graeme Wheeler will cut the official cash rate to 2.5 percent next week, in the face of weak inflation.

"We are at a point where we've got some quite significant potential changes in structural settings for monetary policy globally," Solly said. "Investors are just stepping back and pausing to think about what that means, and in some cases locking in some very good gains."

Meridian Energy led the benchmark index lower, falling 3.2 percent to $2.28. The country's biggest electricity generator yesterday missed out on being included in a FTSE Russell index during the December quarterly review, disappointing investor expectations it would join the index. Institutional investors typically buy stocks in the indices that they track.

"There were expectations Meridian would get onto that index, and it had been bought up aggressively because of that," said Matthew Goodson, managing director at Salt Funds Management. "Now you're seeing that price drop."

Dual-listed Australian lender Westpac dropped 2.2 percent to $35.28, while Spark, the country's biggest telecommunications company, fell 2 percent to $3.22. MightyRiverPower, the partially privatised electricity generator, slipped 1. percent to $2.87.

Xero, the biggest gainer on the day, rose 4.4 percent to $18.95. Trading in the stock is often volatile, and it had dropped 17 percent since last month before today's gain.

Michael Hill International rose 3.2 percent to 97 cents after the founder of the jewellery chain Michael Hill stood down as chairman at its annual meeting today. Shareholders voted to appoint Hill to a new role as founder president, which will allow him to sit on the board for five years without needing to seek re-election. His daughter Emma Hill will take over as chair.

(BusinessDesk)