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New Zealand construction work contracted in the first quarter, adding to signs economic growth stalled as record-high interest rates slowed domestic demand.

Construction excluding inflation fell 6.3 percent from the fourth quarter, Statistics New Zealand said in a report released in Wellington today. Residential building declined 6.6 percent and commercial construction dropped 5.9 percent.

Reserve Bank Governor Alan Bollard last week estimated the economy shrank 0.3 percent in the first quarter and said growth this year will be the weakest in a decade. The slowdown should ease inflation and makes it “likely'' the central bank will cut the benchmark rate from a record 8.25 percent, he said June 5.

“Declining activity in the construction sector makes a first-quarter contraction in real gross domestic product all the more likely,'' said Robin Clements, chief New Zealand economist at UBS AG in Christchurch.

The yield on a three-month bank-bill futures contract maturing in September fell 5 basis points to 8.35 percent as investors increased bets Bollard will cut rates in the third quarter. A basis point is 0.01 percentage point. New Zealand's dollar bought 76.82 cents at 1:45 p.m. in Wellington from 76.88 cents before the report.

Retail sales fell in the first quarter. Economists are awaiting reports the next week on net exports and manufacturing production before completing their economic growth forecasts. The government publishes gross domestic product data on June 27.

“We have a 0.1 percent contraction,'' said Clements payday loan cash advance loan. “The risks are pointing toward the bank's figure'' of 0.3 percent.

Costlier Home Loans

Bollard last week forecast residential investment will slump 17 percent in the year to March 2009. He cut his growth forecast for 2008 to 1.2 percent from the 2 percent estimated in March and said he couldn't rule out a recession this year.

Bollard has maintained New Zealand interest rates at a record high since July. Still, lenders have increased home-loan rates amid a global credit crisis, slowing consumer confidence and stalling the housing market.

House prices fell for a third month in May, Quotable Value New Zealand Ltd., the government valuation agency, said today. Average prices declined 0.3 percent from April. From a year earlier, prices rose 2.4 percent, the smallest gain since the monthly series began in February 2005.

Prices may be heading for their first quarterly decline since the second quarter of 2001, according to Bloomberg data.

The interest rate on a two-year home loan averaged 9.89 percent in April from 8.88 percent a year earlier, according to central bank figures.

Residential construction fell for a second straight quarter after dropping 2 percent in the three months ended Dec. 31.

Home-building approvals declined in March for the third time in four months, according to government figures. House sales fell to a 16-year low in April.

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