UK/Euro Financial Market Daily Evening Briefing 04-02-2008

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London shares close flat; NY weakness offset by M&A-fuelled gains

At the close, the FTSE 100 index was off 3.0 points at 6,026.2, up from a session low of 6,000.2, and having fallen back from a peak of 6,071.3, while the FTSE 250 index finished higher, up 75.5 points at 10,262.1. Volume was weak, with 2.09 bln shares having changed hands in 664,621 deals.

On Wall Street, by London's close, the DJIA was off 64 points at 12,679.2, while the S&P 500 index was down 8.15 at 1,387.25, and the Nasdaq composite index was 15.06 points lower at 2,398.3, as investors paused for breath after a strong run-up in equities last week.

In London, bid rumours aided insurer Friends Provident, which closed 4.7 pence higher at 140.7, as speculation continued that JC Flowers is working on a fresh approach for the company after the conclusion of a strategic review.

M&A speculation also lifted broadcaster ITV, up 2.1 to 78.6, after weekend press suggested that three private equity groups are pondering a 3 bln stg bid for the company.

Bear Stearns upgraded the stock to 'peer perform' from 'underperform'. While it believes a private equity bid at these levels would be very aggressive, it expects the forced sale of part of BSkyB's stake during the year combined with read-across M&A speculation triggered by Microsoft's bid for Yahoo could support the share price in the near term.

Good gains were seen among the miners, against the background of rising commodity prices and a flurry of weekend M&A press reports, although the two main bid targets, Rio Tinto and Xstrata missed out, down 73 at 5,527-1/2, and 108 at 3,894-1/2, respectively.

Anglo American was up 35 pence at 2,944, after saying today it has entered a memorandum of understanding with China Development Bank, fuelling further M&A speculation. Elsewhere in the sector, investors continued to speculate over whether a bid for Rio Tinto from BHP Billiton will arrive before Wednesday's deadline.

Hopes of a successful bid have been fading after Alcoa and China's state-owned Chinalco jointly acquired a 12 pct stake in Rio last week. BHP was 27 higher at 1,648-1/2.

Among other sector plays, Vedanta Resources was 3.01 pct higher, up 59 pence at 2,020-1/2 and Antofagasta was 10 higher at 710-1/4. On the Second tier, Aquarius Platinum topped the leaderboard, gaining 74 to 741, followed by International Ferro Metals, up 7-1/4 at 102-1/2.

Miners apart, Royal Bank of Scotland led the blue-chip risers, 16-3/4 ahead at 405-1/2, following yesterday's report in the Sunday Telegraph that it would consider offloading assets including part of its minority stake in Bank of China in the event that a deepening crisis in the banking system requires it to raise fresh capital.

A broker change provided the impetus for shares in Cairn Energy, up 10 at 2,557-1/2, with Morgan Stanley upgrading its rating to 'overweight' from 'equal weight', prompted by news last week the company is on track to deliver first oil from Mangala in Rajasthan by the second half of 2009.

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Meanwhile, news of an order win helped propel shares in Rolls-Royce 4 higher at 490-1/4. Earlier, the jet engine maker said it has won orders for its jet engines and maintenance services worth more than 1.5 bln usd at list prices.

Elsewhere among the FTSE 100 gainers, Sage Group rose 6-1/2 to 229-1/2 as investors took comfort in its trading update, in which the UK's largest software company said it is confident of meeting its revenue-growth target for the full year.

Deutsche Bank reiterated its 'buy' rating on the company on which it has a 305 pence target, while highlighting that the group has strong defensive characteristics.

Turning to the casualties, Carphone Warehouse led the fallers, down 24-3/4 weaker to 314-3/4 amid profit-taking following recent bid speculation.

Also on the back foot was Unilever, off 41 at 1,676, ahead of its full-year results on Thursday, after the Sunday Times said chief executive Patrick Cescau will this week deliver a defiant rejection of calls to return funds to shareholders.

The stock was also hit by a Panmure Gordon downgrade to 'hold' on valuation grounds. Shares in Sainsbury dropped 9-1/2 pence to 386 amid underlying worry over the Tchenguiz stake, and caution ahead of Thursday's interest rate decision. Tesco was 8 pence ahead at 408-3/4.

Smith & Nephew lost 16-1/2 pence to 639 on the back of recent negative comment from Nomura Code. Turning to the second line, stricken lender Northern Rock was the biggest midcap faller, off 8 at 88, after buyout firm Olivant Advisers said it won't submit a rescue proposal for the stricken mortgage lender.

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Meanwhile, budget airline easyjet was down 13-3/4 at 453 after competitor Ryanair reported a drop in third-quarter profits and warned on profits for next year.

Randgold Resources lost 170 to 2,300 after its full-year update failed to excite. The miner posted a 10 pct decline in full-year net profit on exceptional items.

On a brighter note, Mitchells & Butlers gained 16-1/4 at 466-1/2 after Punch Taverns said it has submitted outline terms of a possible merger to the board of M&B. Evolution Securities responded by raising its recommendation to 'buy' from 'add' and hiking the target to 600 pence from 500. Punch shares fell back 46 to 667-1/2 on the news.

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Paris shares close flat as Wall St slides; SocGen sheds some recent gains

The CAC-40 index ended down 4.42 points at 4,973.64 while the SBF-120 was up 2.37 points at 6,60.657. On the Matif, February CAC-40 futures were trading at 4,980, and the euro was quoted at 1.4825 usd, compared to 1.4847 late Friday.

ArcelorMittal added 0.18 at 47.38, extending Friday's gains, while Vallourec climbed 5.28 or 3.84 pct to 142.77. Vallourec has frequently been cited as a natural bid target, with ArcelorMittal and Gazprom both named as possible buyers.

Saint-Gobain added 0.39 to 55.59, lifted by rumours that Wendel is planning to raise its stake in the building materials group.

Among other risers, Gaz de France was up 0.95 or 2.57 pct at 37.88, helped by an upgrade to 'buy' from 'neutral' at UBS. The broker said once the company is merged with Suez, the new group will offer defensive growth and an attractive valuation.

At a press conference with President Nicolas Sarkozy, Romanian president Traian Basescu confirmed Gaz de France will be involved in the construction of the Nabucco Caspian gas pipeline project.

Nabucco is a 3,300-kilometre pipeline to transport gas from the Middle East and Central Asia to consumers in Europe while bypassing Russia.

UBS also raised its price target on Suez to 49 eur from 47.5, reiterating its 'buy' stance, saying the stock is better supported in the unlikely event of a deal failure or an adjustment of the terms of the deal.

Suez shares rose 0.70 or 1.68 pct at 42.44. In the auto sector, Peugeot gained 1.36 or 2.67 pct to 52.22, supported by a positive note from Societe Generale.

The French broker named Peugeot its top pick in the European auto sector, citing the group's defensive profile, with limited US exposure and a low share valuation.

On the downside, a number of stocks saw profit-taking, with troubled banking group Societe Generale among the obvious targets after adding close to 19 pct last week on talk of a takeover approach.

The shares fell 4.19 or 4.77 pct to 83.61. Dealers said the M&A talk was calming down temporarily, with investors pausing to wait for the bank's 5.5 bln eur capital increase, rumoured to be held this week.

EDF fell 1.13 or 1.64 pct to 67.87, after a report in Spanish newspaper Cinco Dias claimed Iberdrola is in talks with potential investors to fend off a possible takeover bid from the French utility.

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German shares close higher, boosted by earlier market gains

The DAX closed up 31.82 points or 0.46 pct at 7,000.49, having traded between a low of 6,975.93 and a high of 7,059.19. The MDAX gained 99.78 points or 1.11 pct to 9,103.10, while the TecDAX advanced 9.72 points or 1.18 pct to 835.19.

DAX futures fell 8.50 points or 0.12 pct to 7,031.50, while bund futures dropped 0.15 points or 0.13 pct to 116.55. The euro was trading at 1.4825 usd, compared with 1.4823 usd in London afternoon deals.

Leading large-caps higher, TUI added 0.85 eur or 5.69 pct at 15.80, after breaking past a resistance barrier at 15 eur per share, a Frankfurt-based trader said.

MAN jumped 3.06 eur or 3.58 pct to 88.64, after Merrill Lynch added the stock to its "Capital Goods Most Preferred" list and ahead of the truckmaker's full-year figures out Thursday.

BMW rose 0.97 eur or 2.59 pct to 38.42, despite weak US unit sales. The company said its US unit sales fell to 16,935 in January, down 22.4 pct compared with last year.

BMW said sales were impacted by lower than normal inventory levels due to a very strong retail performance in December and high demand for all-wheel drive models.

EON rose 2.39 eur or 1.89 pct to 128.64, while Bayer advanced 1.03 eur or 1.87 pct to 55.97.

On the downside, Hypo Real Estate lead blue-chips lower, dropping 0.91 eur or 4.22 pct to 20.66, after Citigroup reiterated its 'sell' rating on the bank and cut its target in half to 17.00 eur per share from 34.00.

Other financial were down, with Deutsche Postbank losing 1.32 eur or 2.36 pct to 54.68, while Munich Re fell 1.97 eur or 1.62 pct to 119.70.

Over on the MDAX, Hochtief climbed to the top of Germany's mid-cap index, increasing 4.78 eur or 6.87 pct to 74.40, on vague takeover rumours which were nonetheless dismissed by the company.

A spokesman at Hochtief, however, said that the rumours were unfounded. "There are no talks nor any indications that confirm this kind of speculation," he said.

At the other end, Gagfah shed 0.42 eur or 3.29 pct to 12.35. TecDAX-listed Adva rose 0.25 eur or 10.59 pct to 2.61, while at the other end, Kontron retreated 0.34 eur or 2.75 pct to 12.01.

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Amsterdam shares close higher, but off highs as Wall St dips; ASMI surges

The AEX closed up 0.30 points or 0.07 pct on the day at 451.91 after opening at 456.85 and trading in the range 449.91-457.13. Government bonds traded lower, while the euro stood at 1.4818 usd compared with 1.4849 usd late Friday.

The day's biggest gainer was midcap stock ASMI, which surged 9.99 pct at 14.20 eur amid renewed speculation shareholders Fursa and Hermes are preparing a takeover offer.

On the AEX, Corporate Express led gainers as it put on 3.35 pct at 4.32 eur ahead of its fourth quarter results on Thursday in which analysts expect the officer supplies company will report a drop in profits.

TomTom rose 3.22 pct at 39.14 eur. Among blue chip oil stocks, SBM Offshore put on 2.07 pct at 20.20 amid news of a target cut at HSBC, while Royal Dutch Shell strengthened 0.75 pct to 24.15.

Philips added 0.82 pct at 26.97 eur amid news it has extended the tender offer period to buy Respironics until Feb 22.

Heineken closed marginally higher, up 0.24 pct at 27.56 after initially falling on Merrill Lynch lowering its 2008 and 2009 estimates and reports last week stating that merger talks between Anheuser-Busch and InBev have become serious.

On the midcap, Fugro gained 4.43 pct at 47.16 following an upgrade at HSBC, while Boskalis Westminster rose 3.90 pct at 39.65.

Small cap stock Imtech gained 2.58 pct at 14.31 eur on a positive read-through from news it has won two multi-year traffic management contracts in the UK representing a total value of almost 60 mln eur, market sources said.

Arcadis rose 1.55 pct at 42.65 amid news that it is exploring with International Business Machines Corp opportunities to work together in the area of advanced water management.

Financials, meanwhile, led the eight blue chip decliners amid ongoing fears of the fallout from the US sub-prime crisis, with Fortis taking the biggest hit, losing 1.64 pct at 15.03.

Unilever was down 1.43 pct at 22.00 eur ahead of its fourth quarter results on Thursday. On the midcap, Wereldhave was off 1.78 pct at 74.35.

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