UK/Euro Financial Market Daily Evening Briefing 04-07-2007

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The FTSE 100 maintained its upward momentum today, finishing close to session highs, with investors seemingly undeterred by the likelihood of a 25 basis point hike in interest rates tomorrow.

M&A news boosted the hotel sector following a takeover offer for Hilton Hotels.

By the close, the FTSE 100 index was up 33.3 points at 6,673.1, with the FTSE 250 index finishing up 86.6 points at 11,834.2.

Volume was fair, with 2.3 bln shares changing hands in 396,605 deals.

With the US closed for its July 4 celebrations marking Independence Day, it was the turn of the hoteliers to lead the market today with InterContinental Hotels finishing up 49 pence at 1,307.

Whitbread was up 52 pence at 1,805, while FTSE 250 peer Millennium & Copthorne added 26 pence to 678 on a read-across from the 26 bln usd takeover move for Hilton Hotels by private equity firm Blackstone Group.

Strength in property issues was a feature as well. The sector bounced back after recent falls amid interest rate concerns, with British Land gaining 38 pence to 1,370, while Land Securities firmed 36 pence to 1,768, and Hammerson added 9 pence to 1,432.

British Airways finished strongly, up 22 pence at 440-1/2, despite seeing its June 2007 passenger load factor fall by 1.4 percentage points from last year to 80.5 pct.

Investors were encouraged by the resilience in demand seen for the carrier's high-margin premium tickets.

Blue-chip pub operators also found support, again helped by yesterday's good news from mid-cap Greene King, with Punch Taverns up 38 pence at 1,300, Enterprise Inns ahead 13-1/2 pence at 700-1/2, and Mitchells & Butlers rose 8-1/2 pence to 880.

Elsewhere, Rolls Royce continued to benefit from yesterday's upbeat trading statement, gaining 9 pence at 556-1/2.

Compass Group shares gained 5 pence at 354-1/2, following good trading news from French contract catering peer Sodexho Alliance.

And Vodafone recovered from falls to trade 0.3 pence better at 166.1 after German newspaper Rheinische Post said T-Mobile had been selected as Apple's service provider for the new iPhone to be sold in Germany when it is launched later this year.

Among the minority blue-chip fallers, Lonmin suffered from profit-taking after recent gains on takeover chatter, losing 74 pence at 4,236, with peer Rio Tinto down 24 pence at 3,944.

Elsewhere, shares in ITV dropped 0.5 pence to 114.50, after the UK commercial broadcaster reported another fall in advertising sales in the first half of 2007 in an unscheduled trading report, adding there are, however, signs the advertising market is stabilising.

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Shares close slightly higher, led by miners

Stockholm shares closed a very quiet session slightly higher, with mining firms leading the market upward.

The OMX Stockholm index closed up 0.39 pct at 417.34, while the OMX Stockholm 30 index ended 0.39 pct higher at 1,279.49. Turnover was 15.50 bln skr.

The main sector movers were materials, which closed up 1.35 pct; banks, up 0.57 pct; and telecommunication services, 0.98 pct higher.

The major movers within these sectors included Lundin Mining, up 2.37 pct at 86 skr bid; SEB A, up 1.10 pct at 229.50; and TeliaSonera, up 1.46 pct at 51.75.

Ericsson B closed up 0.07 pct at 28.06. HSBC upgraded Ericsson to 'overweight' from 'neutral' with a target rise to 33 skr from 28 skr as it sees further growth on the back of Sony Ericsson margin improvements.

In a note to clients, the broker said Ericsson may well be subject to volatility in the short run due to cash flow concerns, but added that the telecoms supplier is well exposed to emerging market economies, which is likely to improve mobile sales in the medium term.

Swedish Match closed down 0.77 pct at 128, after UBS cut it to 'reduce' from 'neutral', and left its target at 124 skr.

In a note to clients, UBS said there is limited upside from the current share price level, pointing out it forecasts Swedish Match to trade on about 13 times 2007 estimated EBITDA, a premium to the UBS European tobacco sector of about 8 pct.

UBS said that, to put this in perspective, CVC Capital Partners' bid for Altadis is about 13.8 times 2007 estimated EV/EBITDA, and Reynolds American (RAI) bought Conwood for 12.3 times 2005 EV/EBITDA.

It said it has not changed its profit forecasts, but it thinks there is more downside than upside risk both to its own and consensus estimates for full-year 2007 to 2009.

UBS said this is mainly due to margin erosion in the snus (snuff) division from lower sales in Sweden due to the tax hike in Jan 2007.

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German shares closed higher, led by Henkel and Continental AG, after a day of muted trade, with Wall Street closed for the US Independence Day holiday.

The DAX was up 24.58 points or 0.31 pct at 8,075.26 points, having traded between 8,055.25 points and 8,090.22 points.

The MDAX closed 82.57 points or 0.74 pct higher at 11,247.69 points, while the TecDAX was up 5.13 points or 0.53 pct at 970.80 points.

DAX futures were up 26.50 or 0.33 pct at 8,144.00, while bund futures lost 0.36 or 0.32 pct to 110.49.

The euro was trading at 1.3621 usd, against 1.3618 usd in afternoon London trade yesterday.

Henkel gained 1.39 eur or 3.60 pct to 40.02 eur and Continental rose 1.72 eur or 1.64 pct to 106.34 eur.

TUI advanced 0.34 eur or 1.63 pct to 21.24 eur..

Linde rose 0.76 eur or 0.84 pct to 91.36 eur as traders pointed to continued focus on the chemical sector.

A week ago, a statement from Werner Wenning, the chief executive of competitor Bayer, that the chemical sector is likely to grow strongly started speculation of higher-than-anticipated revenues in the sector.

It was followed by vague rumours of a possible tie-up between BASF and Linde.

Bayer gained 0.80 eur or 1.42 pct to 57.21 eur.

Automotive stocks were also a bright feature, after upbeat US unit sales figures released last night.

BMW rose 0.57 eur or 1.18 pct to 48.97 eur and Volkswagen gained 1.57 eur or 1.30 pct to 122.17 eur.

Bucking the trend, DaimlerChrysler fell 0.40 eur or 0.58 pct to 68.21 eur.

The biggest loser was Deutsche Post, having eased 0.27 eur or 1.13 pct to 23.61 eur.

Metro fell 0.23 eur or 0.37 pct to 61.70 eur after Commerzbank downgraded its stance on the retailer to 'hold' from 'buy' and maintained its target at 61.55 eur per share.

Munich Re slid 1.03 eur or 0.75 pct to 136.39 eur after it came under pressure from a Financial Times report that said reinsurance companies have cut their fees by as much as 20 pct due to fewer natural disasters in 2006 and increased competition.

Over on the MDAX, MLP jumped 1.00 eur or 6.94 pct to 15.40 eur as rumours emerged that the French insurance giant AXA might be interested in taking over the German financial services provider.

"The two would fit well with each other," said a Frankfurt-based trader about a potential merger.

Sources within the industry said, however, that there is no substantial basis for the speculation.

At the other end of the index, Wacker Chemie dropped 3.95 eur or 2.19 pct to 176.65 eur.

Adva was the strongest TecDAX-listed stock, up 0.24 eur or 3.40 pct or 7.29 eur, while Singulus fell 0.22 eur or 2.22 pct to 9.69 eur.

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Milan shares ended marginally higher in lacklustre trading due to the market holiday in the US, with focus on shares which gained the least over the past weeks and with bullish broker comments pushing Saipem and Autogrill to record intraday highs.

The Mibtel index finished up 0.15 pct at 33,220 while the S&P/Mib index ended 0.09 pct higher at 42,411 on volumes worth some 3.239 bln eur, the lowest level seen in at least five trading sessions.

"Volumes were extremely thin but the trend confirms interest for the stronger shares that benefited from target upgrades and those shares that did the least over the past weeks," said Davide Manenti, head of research at Nuovi Investimenti SIM.

Leading the S&P/Mib higher was Saipem, which ended up 5.95 pct at 27.08 eur after touching a new record intra-day high of 27.03 eur, thanks to upbeat prospects for the group's order portfolio and general bullish sentiment on the sector.

Morgan Stanley today reiterated its 'overweight' stance on the stock and raised the target by 29 pct to 31 eur.

"The increase in oil prices is benefiting all of the oil sector and Saipem is the one benefiting the most," Manenti said.

Other oil stocks were less bullish with ERG up 0.39 pct at 20.38 and market heavy-weight Eni ending down 0.62 pct at 27.29.

Autogrill ended up 1.33 pct at 16.19, after touching a new intra-day record high of 16.39, as Merrill Lynch raised the target on the stock to 17.50 eur from 15.50 eur following the Italian group's cash takeover offer of Alpha Airports.

According to the broker Autogrill still has some 1.0 bln eur of re-leverage potential for further acquisitions or capital restructuring once the Alpha takeover has been completed.

Fiat ended down 0.18 pct at 22.75 as profit taking kicked in after the share rose above the 23 eur mark, levels not seen since September 2001, as the company will present this evening its new 500 model which according to dealers is seeing strong orders.

"I think many investment banks will take advantage of the presentation of the 500 model to hike their target ," Manenti said.

Lottomatica ended up 2.98 pct at 30.37 after recent strong falls on reports of regulatory problems with its network of videogaming terminals and slot machines.

Among the smaller stocks, Campari gained 3.60 eur at 7.95 as Exane BNP Paribas initiated coverage with an 'outperform' stance and a 9.0 eur target.

In the banking sector, Banca CR Firenze ended up 0.91 pct at 6.415 after reports that the merger deal with Intesa Sanpaolo is near.

Enrico Salza, chairman of the Intesa Sanpaolo's management board today said he hoped to close the deal by the end of the month.

Intesa Sanpaolo ended down 0.18 pct at 5.55.

Unicredito Italiano ended up 0.19 pct at 6.715 ahead of of its capital day tomorrow that will outline the bank's strategy in central and eastern Europe.

Unicredito's merger partner Capitalia finished up 0.09 pct at 7.46.

Alitalia ended up 1.28 pct at 0.814 after continued uncertainty over its privatization, with binding bids due to be presented by July 12.

Transport minister Alessandro Bianchi today denied reports that the government was studying alternative plans should the privatisation of the ailing airline fail.

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