Transtasman government guarantees on personal savings during the weekend have bolstered the New Zealand and Australian sharemarkets compared to the hammering last week following panic selling in the United States and Europe.
The NZSX-50 index finished down 0.8%, having traded up to more than 1.5% during the day, while the ASX All Ords and S&P200 both opened strongly, between 6%-7%, and with about two more hours of trading to go were up around 4%.
The New Zealand and Australian governments have guaranteed personal savings for, respectively, two years (potentially up to $150 billion) and three years, in a move to quell investor panic as other governments around the world pour billions of dollars into propping up banks and financial institutions carrying bad debt.
Earlier US bail-outs failed to allay investor concern, but the combined US, United Kingdom and European commitment to increase assistance could be the turning point.
In New York last week, the benchmark Dow Jones industrial average and S&P500 index fell 18% and shed billions of dollars in company value, while the New Zealand NZSX-50 index plunged more than 11% - volatility not seen since the 1987 crash.
ABN Amro Craigs broker Peter McIntyre said early US futures trading, which starts well before the other indexes open, indicated the Dow Jones and S&P500 were likely to start about 2% up for its Monday trading.
Four of the five major Asian bourses were in positive territory yesterday, having similarly closed down 3% to more than 9% last Friday.
"It has been a day of uncertainty on the markets as details of the guarantee are queried," Mr McIntyre said.
BNZ chief economist Craig Ebert said while the New Zealand economy was not immune to world turmoil, its monetary policy and financial system alike were in an "enviable position", especially when compared to the extent of problems faced elsewhere.
He favoured the Government's move to back a retail deposit insurance scheme, which would "help guard against irrational consumer behaviour".
However, he cautioned that regardless of the guarantee, there was a limit to how much policy could be used to avert a major economic slowdown from playing out, both internationally and in New Zealand.
"The bigger hangover we're facing may be just how drunk the world got on credit," Mr Ebert said.
The economic news could only get worse given the latest deterioration in credit and financial markets and downturn in confidence, he said.
The Reserve Bank of New Zealand had maintained a firm official cash rate in recent years and had leaned against the type of "credit binge and shonky lending" which had caused so much strife in other countries.
"As a consequence, governor Alan Bollard has afforded himself a great deal more bullets to deal with an arguably lesser threat," Mr Ebert said.
