The New Zealand sharemarket was up 1% in early trade today, after United States equities had their best day in six years.
News that the US government is considering a more comprehensive solution to the financial crisis than the current piecemeal approach spurred a furious late rally on Wall Street.
The early rise in this country, taking the benchmark NZSX-50 index up 32.22 points to 3191.14, came after the New Zealand sharemarket had plunged 3.4% yesterday.
That sharp fall wiped $1.3 billion off the value of shares in the market's biggest%age fall since November 2002.
In the US, responding to the week's gut-wrenching upheaval of the financial system, Treasury Secretary Henry Paulson was shopping around a proposal to lawmakers that would create an entity to deal with the billions of dollars of bad debt in the financial system, a congressional aide said.
The Dow Jones industrial average jumped 3.9%, the Standard & Poor's 500 Index climbed 4.3% , and the Nasdaq Composite Index shot up 4.8%.
For all three indexes, it was the biggest one-day%age gain since October 2002 -- when the last bull market was born.
The rise capped a day of whip-saw trade in global markets.
Initial enthusiasm over a move by the world's leading central banks to thaw the credit crunch with an injection of $US180 billion ($NZ270.8 billion) initially sent stock markets up, only to turn negative as fears of financial contagion spread.
Also helping the market were a flurry of headlines that seemed to point to a concerted global effort to clamp down on short sellers, who place bets that stocks will fall.
It was the first day of new US Securities and Exchange Commission's rules aimed against abusive "naked" short selling of stock.
Britain's Financial Services Authority also said investors will be temporarily barred from taking new short positions in financial stocks.
Implementation of the new rules should stem the massive bear raids that dramatically accelerated the huge drop in share price of several financial institutions, said Fred Dickson, chief market strategist at DA Davidson & Co.
Short sales are designed to profit from a declining share price by an investor or broker arranging a sale of a share he does not own but has been "borrowed" on an agreement to return the share at a future date.
In "naked" short sales the investor has not borrowed the shares but intends to do so.
At the same time, New York state is launching an investigation into whether some traders used illegal tactics to drive down the stock price of several Wall Street firms.
Attorney General Andrew Cuomo said he will focus on whether short sellers engaged in conspiracy or spread rumours and bad information to influence stock prices.
NZX managing director Mark Weldon said yesterday's sharp fall on the sharemarket in this country came as banks required hedge funds and other investors to deposit more money.
As a result investors were "essentially just liquidating liquid assets such as those in the New Zealand market".
"So that's really what drove our market down yesterday, along with a bit of fear obviously," Mr Weldon told Radio NZ today.
Amid so much uncertainty, fear was the driving factor, but all markets hit certain levels where sensible investment returned, Mr Weldon said.
"You would have to look at some of the stocks on our market, like a Contact Energy, and just realise not a lot of leverage, not a lot of exposure to the US financial system, people still need electricity.
"The world will see its way clear again having cleaned itself of the after effects of just a very unhealthy credit binge over the past 10 years."
