UK/Euro Financial Market Daily Evening Briefing 03-03-2008

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London shares close weaker, but off lows; banks fall; Wall Street down

At the close, the FTSE 100 index was off 65.7 points at 5,818.6, having recovered from a low of 5,770.1. The FTSE 250 index was down 54 points at 10,013.9. Volume was below average, with 2.4 bln shares having changed hands in 774,374 deals.

Wall Street opened lower, amid ongoing jitters about flagging economic growth and the crisis in the credit markets. Billionaire Warren Buffett added to the downbeat mood by commenting that the US economy is essentially in a recession even if it hasn't met the technical definition of one yet.

Meantime, investors trying to determine whether recent pessimism has been well-founded or overwrought examined the Institute for Supply Management's survey on U.S. manufacturing index. The reading came in at 48.3 -- stronger than the 48.1 Wall Street had been expecting, according to Thomson Financial/IFR. However, the government reported that construction spending in January fell by the steepest amount in 14 years.

Relief that the ISM data was not as bad as expected helped to limit the losses of US shares but they were still in the red as the London markets were closing. The Dow Jones Industrial Average was down 36.2 points at 12,230.2. The S&P 500 was down 0.5 points at 1,330.15 while the Nasdaq Composite was 8.76 lower at 2,262.72.

David Evans, market analyst at BetOnMarkets.com, said: "When Buffett speaks, people listen. Unfortunately, today he had little to say that was positive about the US economy".

"People hunting for bargains in heavily sold sectors like finance will have thought again following these words. HSBC stood out by a country mile on a day the rest of the UK's listed financial shares would rather forget."

Among UK equities, banks remained the major story. HBOS fell to its lowest in five years and was the FTSE 100's biggest loser, off 45-1/2 at 558, extending its losses after poor numbers last week, with Bear Stearns cutting its rating to 'peer perform' from 'outperform'. The broker highlighted that funding pressures continue to impact HBOS's performance.

Elsewhere in the sector, Royal Bank of Scotland fell 15-3/4 to 369-1/4, and Barclays gave away 15-1/4 to 462. Alliance & Leicester was down 38 at 525-1/2.

HSBC, however, bucked the trend, and was top of the FTSE 100 leaderboard at the close, up 24 at 790. The UK's biggest bank delivered a 10 pct increase in full-year profit, with a strong performance in Asia helping to offset a sharp rise in bad debt charges at its troubled US division.

"North America has been even worse than expected, but on the other hand Asia has perhaps done even better," said Simon Willis, banks analyst at stockbroker NCB, who has a "reduce" stance on the shares. "We think there's still a lot of pain to come through in the States."

But insurers suffered, with Friends Provident down 6-1/2 at 127, and Aviva 27 lower at 584-1/2.

Elsewhere, Pearson  fell 17-1/2 to 648-1/2 after concerns about prospects for the publisher's US-based education business overshadowed better-than-expected full-year results and a generally positive outlook for 2008.

Still on the downside, weekend press reports suggest Rentokil's under-fire chief executive, Doug Flynn, is secretly preparing the group for a break up after this week issuing its second profit-warning in the space of two months.

The shares closed 0.8 down at 82.6. The company is almost certain to be relegated from the FTSE 100 in the quarterly reshuffle this month.

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Oils also played their part in dragging the FTSE lower, despite crude prices at record levels. Brent for April delivery was recently trading up 1.63 usd at 101.75 a barrel, and had been over 102 usd. BP fell 5-1/2 to 540-1/2. Royal Dutch Shell was off 39 at 1,742, and Cairn Energy fell 119 to 2,598.

The weak dollar was a major factor in pushing oil higher, as investors hedged against inflation. The weak dollar also pushed gold up and it was recently trading at a record 989.33 usd an ounce. Platinum, palladium and silver also gained.

In the case of the metals, higher prices generally translated into share gains for some of the producers. Anglo American rose 41 pence to 3,275 pence. Lonmin ended 45 higher at 3,352 pence. Xstrata managed a gain of 40 to 4,000, as investors looked beyond its results for clues on when Vale might go ahead with its offer.

JM Finn said the results were excellent, but overshadowed by the ongoing negotiations between Vale and Xstrata. It said the gap between Glencore, which owns 35 pct of Xtrata, and Vale has been overplayed and the matter will be resolved. It advised investors to 'buy'.

Turning to the second liners, Close Brothers fell 23 to 636, after reporting a 2 pct drop in its first-half profit, held back by the credit crunch, it said it had decided not to break itself up or return cash to shareholders following a strategic review.

The shares fell sharply on Friday after the company said takeover talks had ended. Bradford & Bingley was hurt by the banking gloom, and was the biggest midcap faller at the close, down 20-1/2 at 204-1/2. A broker downgrade helped push shares in Moneysupermarket.com 6-3/4 lower at 131-1/4, with UBS cutting its rating on the group to 'neutral' from 'buy', while keeping its target unchanged at 140 pence.

On the 250 upside, WSP was 25-1/2 higher at 568, after the company unveiled full-year numbers ahead of expectations, with Altium Securities reiterating its 'buy' rating and 650 pence target and WH Ireland upgrading its two-year earnings estimates.

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Meanwhile, a reassuring trading update lifted Game Group 4-3/4 higher at 191. The company said it expects full-year pretax profit to be not less than 74 mln stg, slightly ahead of the 73 mln stg indicated previously.

Seymour Pierce retained its 'buy' stance on Game Group.

Cobham ended the day 7-1/4 higher at 189-3/4 after saying it will earn up to 1 bln usd from the use of its products on Northrop Grumman aircraft, which have been selected by the USAF for the multi-billion dollar tanker programme.

In reaction, Merrill Lynch said the sales are worth about 3 pence per share and repeated its 'buy' view this morning.

Engineering group GKN will also benefit from the USAF deal. It rose 20, or 7.6 pct, to close at 285. Contracts should mean more business for an operation GKN is in the process of buying at Filton, near Bristol, from Airbus.

Further, Citigroup upped its target on GKN to 295, from 285, while keeping a 'hold' rating and Evolution reiterated its strongly positive 'buy' stance.

Finally, Helphire regained some ground lost recently, and was the biggest FTSE 250 riser, up 25-1/4 at 197-1/4, as directors bought shares.

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Paris shares end down, off lows, tracking Wall St; EADS jumps on US order

The CAC-40 index finished down 48.00 points, or 1.00 pct, at 4,742.66. Among CAC-40 stocks, 7 closed higher and 33 closed lower. On the Matif, March CAC-40 futures were trading at 4,744. On the broader indices, the SBF-80 index closed down 76.81, or 1.39 pct, at 5,446.43 and the SBF-120 ended down 36.58, or 1.05 pct, at 3,436.85.

The euro was quoted at 1.5174 usd compared to 1.5179 usd late Friday. In Paris, industrial financials continued to suffer in today's bearish market amid the fears of further fallout from the credit crisis. Societe Generale fell 1.51 eur, or 2.12 pct, to 69.59, Dexia shed 0.28, or 1.79 pct, to 15.38, while insurer Axa gave up 0.41, or 1.82 pct, to 22.07.

Technology stocks were also among the main fallers, with Capgemini down 1.06, or 2.91 pct, at 35.38, STMicroelectronics off 0.24, or 3.00 pct, at 7.76, while outside the CAC-40 Soitec tumbled 0.31, or 7.45 pct, to 3.85.

Utilities also saw significant profit-taking, with Veolia Environnement, down 2.25, or 3.82 pct, at 56.62, and Suez, 1.33, or 3.15 pct, lower at 40.88, ending the day as the biggest blue-chip fallers. But EADS shrugged off the market gloom, soaring 1.61, or 9.24 pct, to 19.04 as investors welcomed its surprise win over rival Boeing to win a major refuelling plane contract with the US Air Force.

Among the other rare CAC-40 climbers, Peugeot added 1.83, or 3.62 pct, to 52.39, helped by an upgrade to 'add' from 'hold' at WestLB. Still in the auto sector, Michelin came off earlier losses to end up 0.27, or 0.41 pct, at 65.88. The shares moved higher after the company announced prices increases of up to 8 pct on truck tyres in the US in order to offset higher raw material costs.

Sanofi-Aventis added 0.11, or 0.23 pct, at 48.90, rebounding slightly from heavy losses late last week which were sparked by intensifying talk of a generic threat to the group's blockbuster drug Lovenox. Outside the CAC-40, Nicox shed 1.16, or 10.84 pct, to 9.54 after revealing its net loss increased to 32.144 mln eur in 2007, versus 24.435 mln in 2006. Other fallers included M6, down 0.55, or 3.52 pct, at 15.09 ahead of its full-year results this evening

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German shares close lower as Wall Street declines following economic data

The DAX closed 58.18 points, or 0.86 pct, lower at 6,689.95, having traded between 6,608.61 points and 6,701.53 points. The MDAX slid 58.89 points, or 0.65 pct, to 9,034.65 points, while the TecDAX retreated 15.71 points, or 2.00 pct, to 768.32 points. DAX futures were up 3.50 points, or 0.05 pct, at 6,706.50, while bund futures were up 0.11, or 0.09 pct, at 117.37. The euro was trading at 1.5174 usd, compared with 1.5186 usd in morning deals in London.

Meanwhile, on the German market, Deutsche Postbank led blue-chip stocks lower, closing 2.63 eur or 4.09 pct lower at 61.75. The stock was hit by slightly negative news that Postbank's parent company Deutsche Post is not in a hurry to sell the unit.

Other financial stocks fared no better, with Hypo Real Estate slumping 0.70 eur or 3.70 pct to 18.24 eur, Commerzbank dropping 0.71 eur or 3.54 pct to 19.37 eur and Deutsche Bank declining 1.32 eur or 1.78 pct to 72.94 eur.

Bucking today's negative trend, MAN added 3.76 eur or 4.31 pct to 90.98 eur after Volkswagen announced a deal to boost its voting rights in Scania AB, which is viewed as a step to create a three-way tie-up between MAN, Scania and VW's commercial vehicles unit.

Volkswagen shares, meanwhile, gained 2.36 eur or 1.57 pct to 162.35 eur, partially due to speculation of a three-way tie-up, but primarily after luxury automaker Porsche said it will increase its stake in Europe's largest automaker to over 50 pct.

Porsche, which is not listed on any index, gained 2.67 eur or 2.35 pct to 116.20 eur. A local dealer explained that when Porsche holds a stake of more than 50 pct in VW, its earnings per share will grow considerably because VW's earnings will be consolidated into Porsche books. BMW shares added 0.31 eur or 0.86 pct to 36.49 eur, mostly due to rising sector valuations.

Over on the MDAX, Arques Industries led decliners, falling 0.83 eur or 5.93 pct to 13.16 eur. Salzgitter was down 1.46 eur or 1.25 pct to 115.72 eur, alongside steel distributor SGL Carbon -- down 0.49 eur or 1.32 pct at 36.52 eur -- after a media report said Japan's largest steelmaker Nippon Steel Corp is expected to fall short of its group pretax profit forecast for the year.

At the other end of the index, IKB Deutsche Industriebank soared up 0.79 eur or 14.08 pct to 6.40 eur after Financial Times Deutschland reported several financial investors are interested in acquiring the bank's 6 bln eur investment portfolio, including Ripplewood, Lone Star, Cerberus, JC Flowers, and Goldman Sachs. EADS stock rose 1.56 eur or 8.94 pct to 19.00 eur following the surprising news the group won a 35 bln usd US Air Force contract in conjunction with partner Northrop Grumman Corp.

Over on the TecDAX, QSC fell 0.18 eur or 8.37 pct to 1.97 eur after private equity firm Apax Partners said it is not interested in bidding for the German DSL broadband internet service provider at the moment. Solon was 3.60 eur or 7.30 pct lower at 45.74 eur after Goldman Sachs downgraded it to 'neutral' from 'buy' and lowered its price target to 15.5 eur from 18.3. At the other end, Conergy added 0.22 eur or 1.46 pct to 15.25 eur

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Amsterdam shares close off lows after better-than-expected US data

The AEX closed down 5.05 points, or 1.13 pct, to 441.48 after opening at 439.07, reaching a midday low of 437.03 and then a late afternoon high of 444.33. Government bonds traded mainly lower, while the euro stood at 1.5169 usd, compared with 1.5186 usd late Friday.

Oils led the AEX down, with SBM Offshore sliding 3.36 pct to 20.68 and Royal Dutch Shell losing 2.57 pct to 23.10. Midcapper Fugro was down 3.41 pct to 48.44. Publisher Reed Elsevier fell 2.67 pct to 12.35, Heineken lost 2.43 pct to 36.48 amid the EC extending the deadline for its inquiry into Heineken's proposed acquisition of S&N assets to April 4 from March 18.

DSM shed 2.33 pct to 28.47 eur amid news it will sell its Special Products unit to Arsenal Capital for a net book profit after tax of just above 10 mln eur.

Financials turned mixed, with ING sliding 2.11 pct to 21.78 eur, Aegon weakened 1.81 pct to 9.78 while Fortis turned 0.61 higher to 14.75. Local issue BinckBank sank 5.61 pct to 8.07 eur with investors unimpressed about the bank's optimism over the coming year after it reported sharply higher fourth-quarter net profits. Among techs, ASML was down 1.99 pct at 15.77 eur amid news the company agreed to extend chief executive officer Eric Meurice's contract for four years.

Fellow tech related issue, midcapper ASMI was down 2.23 pct to 12.71 eur as Rabo Securities reduced its price target to 17 eur from 20 and kept the stock at 'hold' on the "low visibility" for the company's Front-end operations in 2008. The Dutch broker said that, in view of the net loss the division is expected to make in 2008, an exchange offer by activist shareholder Fursa cannot be ruled out.

Hagemeyer slipped 0.21 pct to 4.81 eur as Rexel CEO says it's confident a sufficient number of Hagemeyer shareholders will tender shares to takeover offer. Midcapper Crucell was off 2.28 pct to 8.99 as it said it has entered into an exclusive vaccine development agreement with Wyeth.

Local issue Arcadis was down 1.70 pct to 40.0 eur after the company came out with its fourth-quarter results and news it is proposing a three-for-one share split.

Spyker Cars dived 13.82 pct to 5.30 eur after the company reported a nine-month loss of 67.3 mln eur, following the sale of its Formula 1 team as it also said it has not yet reached a final agreement with Orange India, the proposed buyer of the F1 team.

Unibail-Rodamco led AEX gainers, up 2.63 pct to 166.16, followed by ArcelorMittal, 1.29 pct higher to 51.04. TomTom lifted 1.25 pct to 31.59 eur amid market fears over European Commission regulatory objections to its planned acquisition of Tele Atlas, which was 2.53 pct lower to 27.39.

KPN finished the day in the green, rising 0.16 pct to 12.54. Gainers on the AMX included Van der Moolen, soaring 10.63 pct in low volume to 2.81. The company announced after close that 58.7 pct of its repurchase programme has been completed. Other gainers included Heijmans, adding 1.49 pct at 24.53, and CSM, 0.10 pct higher to 20.45 in an extension of last week's sharp gains

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