The NZX benchmark top 50 index fell as much as 1.4 percent in early trading to hit a five month low, before trimming its losses to around 1.1 percent.
Travel and tourism stocks were the hardest hit, with Air New Zealand, Auckland International Airport, Tourism Holdings, and gaming company Sky City all falling 3 percent or more.
Investors have sought safety since Omicron was detected by selling risky assets such as shares and buying government bonds and key currencies including the US dollar and Japanese yen.
"Markets are likely to remain jumpy and volatile until there is greater clarity on the new variant and particularly how effective vaccines are against it," BNZ fixed interest rate strategist Nick Smyth said.
"If it turns out that vaccines are still effective against Omicron, or that the variant only leads to mild illness, then we can expect a sharp reversal of Friday's moves, as the previous narrative around high inflation and a strong global recovery returns to the forefront."
However, the new Covid mutation might upset a lot of assumptions and force economic and financial policy changes.
"Markets were celebrating the end of the pandemic. Slam. It isn't over," David Kotok, chairman and chief investment officer at US-based Cumberland Advisors said.
"All policy issues, meaning monetary policy, business trajectories, GDP growth estimates, leisure and hospitality recovery, the list goes on, are on hold."