UK/Euro Financial Market Daily Evening Briefing 03-12-2007

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London shares close lower, profit taking takes shine off strong retailers

By the close, the FTSE 100 index was down 45.9 points at 6,386.6, while the FTSE 250 index finished off 188.8 points at 10,560.00.

On Wall Street, US shares recouped early softness to trade marginally in the positive on Monday after the Treasury's Secretary, Henry Paulson, said he is confident an agreement will soon emerge to help thousands of homeowners avoid mortgage defaults by temporarily holding their interest rates steady.

A short while ago, the Dow was up 11.5 points at 13,385.9, with the Nasdaq up 3.1 at 2,664.8 and the S&P up 0.2 at 1,481.0.

In London today, Northern Rock headed the FTSE 100 loser board, down 9 at 109, after the Sunday Telegraph reported Deutsche Bank, one of the three institutions lined up to back Virgin's bid for the troubled bank, is threatening to walk away from the deal amid claims the bank has "serious issues" with the takeover proposal from Sir Richard Branson's group.

Deutsche Bank told Thomson Financial News that talks were ongoing but this failed to reassure nervous investors.

The Virgin consortium has not yet agreed funding for the bank, according to press reports, and is relying on three financial institutions to provide it with 10-15 bln stg to pay back some of the 25 bln stg or more Northern Rock has borrowed from the Bank of England.

Pub operators remained under the cosh after restaurant and pub operator Regent Inns said it is no longer confident of achieving growth in this financial year citing unprecedented levels of regulatory intrusion.

The owner of the Walkabout, Jongleurs and Old Orleans chains said like-for-like sales for the 21 weeks to Nov 24 were down 2.8 pct due to growing consumer caution in the market. Regent's shares fell 17-3/4 or 41 pct to 25.

Clapham House warned this morning its second-half profit would not meet market expectations.

In reaction, Mitchells & Butlers closed off 30-1/2 at 546-1/2 as last week's full-year preliminary numbers continued to weigh, with Numis the latest to change its target. The broker cut its price objective to 581 from 638, citing worries the company will not achieve the level of sales it has been targeting from the acquired Whitbread sites.

Restaurant and leisure group Whitbread fell 36 to 1,405 after Citigroup cut its rating to 'hold' from 'buy' and its target to 1,620 pence from 2,026 citing concerns about slowing UK consumer spending and challenging credit markets. Peer Enterprise Inns also lost ground, down 25 at 507.

Standard Chartered fell 49 pence to 1,865 after being cut to 'neutral' from 'buy' at UBS.

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Among oil companies, Tullow Oil fell back 19-1/2 pence to 651-1/2 pence and among miners Rio Tinto fell 197 pence to 5,443, Anglo American fell 95 to 3,191 and Xstrata fell back 71 to 3,348 as weakening oil and metals prices weighed.

On the upside and among a strong retail sector, Tesco closed up 8-3/4 pence at 487-3/4 as investors cheered its plans to expand in the US, and Home Retail and others were lifted by hopes of a strong Christmas season.

Shares in Home Retail Group closed up 11 pence at 358 after Panmure Gordon said it would be one of the winners this Christmas.

Kingfisher topped the leaderboard to close up 6 at 158.3, Next was up 12 pence at 1,752 pence and Morrison ended 6-1/2 better at 315. BAE Systems added 7-3/4 to 467-3/4 amid a price target hike by Citigroup.

Finally among the large caps, Barratt Developments rose 3-3/4 to 469 amid talk of a 600 pence bid but dealers were far from convinced.

Turning to the second rung, Morgan Crucible plunged 61-1/4 pence, or 23 pct, to 200-1/4, after the engineering group warned second-half growth would be slower than the level seen in the first half.

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Rank Group soared 8-3/4 pence, or 8.7 pct, to 109-1/4 on reports that Malaysia's Genting has built up a stake of more than 10 pct in the bingo and casino operator, prompting hopes of a takeover approach. This followed rumours last week of bid interest from US casino giant Harrah's Entertainment.

PV Crystalox Solar finished up 7 at 120, after saying it sees full-year pretax profits to be "materially ahead" of its own expectations announced on Sept 11 while sales revenues are expected to be broadly inline with consensus forecasts.

The silicon-wafer maker also said it has signed a long-term contract with one of its major customers for the supply of 220 MW of multi-crystalline wafers over the next five years.

The company said discussions are ongoing with other customers for further long-term contracts.

Finally Colt Telecom closed up 8 at 190 after Goldman Sachs upgraded the group to 'neutral' from 'sell' after M&A talk.

UK Diary of events:

For a diary of key financial and corporate events in the UK this week, click here

UK Small Cap Report:

For a summary of today's trading on the FTSE 250 and the AIM, click here

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Paris shares close down ahead of important economic data

The CAC 40 index finished down 41.11 points or 0.72 pct at 5,629.46.  Among CAC 40 stocks, 13 closed higher and 26 closed lower.

On the broader indices, the SBF-80 index closed 2.58 points or 0.04 pct lower at 6,456.17 and the SBF-120 ended 25.94 points or 0.63 pct lower at 4,079.47. The euro was quoted at 1.4657 usd, compared to 1.4656 usd at midday.

European data out later this week include euro zone October producer prices on Tuesday and eurozone final November services PMI on Wednesday. The ECB governing council is also set to meet on Thursday to decide on euro zone interest rates.

Air France-KLM led the decliners, falling 0.90 eur or 3.66 pct to 23.68 eur, with some reports citing a downgrade to 'neutral' on the shares from 'buy' by analysts at Goldman Sachs as the trigger.

Vivendi shares bucked the market's overall negative trend after the French media giant said it has reached a deal with Activision of the US to merge its games unit with Activision's to create the world's largest online and console games publisher.

The Vivendi deal also drove gains elsewhere in the sector, prompting Ubisoft Entertainment shares to surge 3.14 eur or 5.28 pct to 62.65.

Oddo Securities raised their stance on Ubisoft to 'buy' from 'add' saying the Vivendi-Activision merger shows just how attractive quality players in the sector can be and the generous valuations they can commend. At the same time, it also reignites speculation over a potential takeover by Electronic Arts, which currently holds 15.37 pct of the French group's capital.

Investment banking stocks fell on renewed concerns over writed-downs at US banks. Societe Generale lost 1.05 eur or 0.99 pct to close at 104.53, while BNP Paribas fell 1.83 eur or 2.37 pct to 75.32 and Credit Agricole closed 0.33 or 1.37 pct lower at 23.69.

France Telecom posted the biggest gains among CAC 40 shares, closing up 0.27 eur or 1.04 pct at 26.22 ahead of the group's investor day scheduled for Wednesday.

Deutsche Bank analysts said they expect the group to give an upbeat presentation focusing on its ability to exploit growth opportunities and control costs. However, in their view, most of this positive news is already priced into the shares.

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German shares close down tracking lower opening on Wall Street

The DAX closed down 33.26 points or 0.42 pct at 7,837.26, after trading between 7,825.66 and 7,889.59.  The MDAX retreated 53.00 points or 0.54 pct to 9,812.49, while the TecDAX was down 8.42 points or 0.87 pct at 961.80.

DAX futures were down 33.50 points or 0.42 pct at 7,864.00, while bund futures advanced 0.52 points or 0.45 pct to 114.87. The euro was trading at 1.4664 usd, against 1.4671 usd in afternoon trade. Deutsche Boerse eased 3.66 eur or 2.85 pct to 124.56 as today's worst large cap performer.

Insurance giant Allianz followed, losing 2.07 eur or 1.47 pct to 138.93. Deutsche Lufthansa declined 0.26 eur or 1.41 pct to 18.19 eur, while Volkswagen fell 2.00 eur or 1.22 pct to 161.84.

Siemens was also lower, dropping 1.22 eur or 1.18 pct to 102.50, after the group said it will appoint seven new shareholder representatives to its 20-member supervisory board, including MAN chief executive Hakan Samuelsson and Allianz head Michael Diekmann.

At the other end, Hypo Real Estate added 0.77 eur or 2.13 pct to 37.00 as the top performer after it rebounded from recent drops.

"Hypo stock suffered a lot recently due to the sub-prime and it is now correcting from these losses," said Dirk Becker von Kepler Equities.

Peer Deutsche Postbank added 0.06 eur or 0.10 pct to 60.00 also making small ground against past losses.

SAP shares gained 0.46 eur or 1.32 pct to 35.40 amid talk that US computer software powerhouse Microsoft Corp might be considering launching a takeover bid for the German-based business software company.

Rumours of a possible joint takeover bid from Nike and Asics boosted Adidas shares, which closed 0.68 eur or 1.50 pct higher at 46.15.

Dealers pointed to vague rumours that the two rivals might be mulling a 15.28 bln eur takeover bid for the German sporting equipment manufacturer, but they said it was highly unlikely that an offer would actually be made.

Fresenius Medical Care saw a 0.45 eur or 1.18 pct gain to 38.19 after its MDAX-listed parent company, Fresenius SE, was started with an 'overweight' rating and a 67.60 eur target at JP Morgan. Fresenius SE added 1.50 eur or 2.65 pct to 58.06.

AWD Holdings AG shot up 6.43 eur or 28.04 pct to 29.36 to the top of the MDAX after Swiss Life Holding announced a 30 eur per share agreed takeover offer, valuing the Hanover-based financial investment company at around 1.16 bln eur.

Peer MLP gained 1.15 eur or 11.64 pct to 11.03 on higher sector valuations and takeover speculation due to the bid.  At the other end of the mid-cap index, Koenig & Bauer fell 0.98 eur or 4.78 pct to 19.52.

TecDAX-listed Morphosys was the strongest stock on the index, up 9.56 eur or 22.90 pct at 51.30 on news that it had extended its cooperation with Swiss pharmaceutical giant Novartis AG and was entering into a 10-year agreement to accelerate discovery of therapeutic antibodies for use against a wide range of diseases.

At the other end, Conergy lost 1.58 eur or 5.65 pct to 26.40.

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Amsterdam shares close lower amid continuing US housing worries

The AEX closed near lows, down 4.70 points or 0.93 pct at 502.88 after opening at 506.86, reaching an early high of 508.91 and a late afternoon low of 501.96.

Government bonds traded higher while the euro stood at 1.4661 versus 1.4698 usd late Friday.  Amid financials, ING was down 0.90 pct at 26.29, Aegon 1.88 pct lower at 11.98 and Fortis shedding 1.75 pct to 17.98.

Staffing stocks were still the news of the day, with Randstad dropping more than 10 pct to 28.99, as investors frowned upon the 3.5 bln eur takeover bid on Vedior. Investors were especially displeased with the possibility of a share issue by Randstad to finance the part-cash, part-equity bid.

Vedior ended the day as the AEX's strongest gainer, up 7.65 pct at 18.30 after Randstad made public its bid, confirming Friday's announcement the two companies were in friendly talks.

Back among AEX decliners, TomTom lost 3.27 pct to 62.68 and ArcelorMittal weakened 2.16 pct to 49.32 after a company spokesman said that chairman Joseph Kinsch will retire next May.

Tech and semiconductor related issue ASML went off 2.02 pct to 23.25, failing to get boosted by an industry report showing semiconductor sales in October increasing over year-earlier and September levels. Philips slipped 0.91 pct to 28.40 and ASMI went 1.81 pct lower to 15.72.

TNT was off 0.96 pct at 27.72 amid news TNT Post and Hermes Logistik cancelled plans to offer mail services to retail clients and small companies after the German government decided to introduce minimum wages for the postal industry.

AEX heavyweight Royal Dutch Shell was off 0.76 pct at 27.36 amid easing oil prices, and amid news the Ormen Lange gas field in Norway remained shut following a small has leak on Friday. SBM Offshore added 0.13 pct to 23.79 and midcapper Fugro added 1.16 pct to 55.54.

KPN edged 0.24 pct lower to 12.53 after spending the day in positive territory following the telecom announcing it is in talks with several telecom operators in Spain, with the object of teaming up with one to become a so-called virtual network operator.

BAM closed down 3.91 pct at 15.72 and Crucell was down 3.12 pct at 21.44.

Back among the few gainers, Unibail-Rodamco put on 7.65 pct to 18.30 and Ahold was up 1.44 pct at 9.85.

Chemical DSM put on 0.79 pct to 34.28 while Akzo Nobel closed down 0.11 pct at 52.34 after initially rising on news the company was awarded a large paints contract by Royal Dutch Shell, and the share was re-initiated at 'buy' with a 60 eur price target at Goldman Sachs.

On the midcap, Ordina rose 4.57 pct to 12.58, Nutreco put on 1.46 pct to 42.26 and Corio added 1.26 pct at 58.67.

Local engineering and maintenance group Imtech lifted 0.67 pct to 16.55 after the company said it intends to buy Spain's Metubsa, a company specialising in industrial maintenance. Imtech is paying five times Metubsa's 2007 operating profit (EBITA).

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