UK/Euro Financial Market Daily Evening Briefing 05-03-2008

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London shares close higher; NY extends gains; Liberty International up

At close, the FTSE 100 was 85.8 points up at 5,853.5, near a day's high of 5,860.5, having recovered from a low of 5,763.9, while the FTSE 250 index was up 199.6 points at 10,144.1. Volume was light, with 2.51 bln shares changing hands in 70,2099 deals.

"There has been a partial recovery in the market today following losses early in the week. Stocks trading at low valuations have attracted some investors back into the market," said Darren Winder, UK strategist at Cazenove.

"However, it is a relief rally and we are still likely to see volatile trading. Investors are still fearing that there is more bad news to come and most investors are still on the sidelines," added Winder. In the US, Wall Street extended gains after the ISM service figures came in stronger-than-expected calming some investors' fears about the frailty of the economy.

Earlier, stocks were moderately higher as economic data showed that labour costs rose at an 2.6 pct annual pace while the economy shed 23,000 private sector jobs in February. At London's close, the Dow Jones Industrial Average index was up 87.8 points at 12,301.6.

In the UK, Liberty International remained the top riser, up 87 at 1,030, as a report in the Independent suggested the company is in talks with a major rival over a merger to create the world's largest shopping mall group, with Australia's Westfield Group and GIC Real Estate named as potential suitors. Its peers were also higher. Hammerson gained 61 at 1,134 and British Land was 52 firmer at 988, while in the midcaps Great Portland Estates was 33-1/2 higher at 522-1/2, and Derwent London rose 86 at 1,514.

Prudential was 41 higher at 643-1/2 as traders said bid speculation in the UK insurer had been reignited by news that Ping An Insurance (Group) Co of China Ltd has got approval for a major fund-raising. British Airways gained 14-1/2 to 265 after traffic figures confirmed long-haul premium traffic remains strong.

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British Airways said it carried 6.5 pct more passengers in February than a year earlier, and added that its load factor during the month increased marginally. There was a 15.1 pct increase in premium traffic and a 3.4 pct rise in non-premium traffic.

Capita Group was 38 firmer at 700 on news it has been named preferred bidder by the Sefton Metropolitan Borough Council for a property and highway services contract worth around 70 mln stg. It was a mixed picture among banks. A broker upgrade helped send shares in HBOS 31 higher to 574-1/2 as ABN Amro raised its rating on the bank to 'hold' from 'sell'.

Stocks trading ex-dividend have knocked about 30 points off the FTSE 100 today, including banks Royal Bank of Scotland, Barclays and Lloyds TSB. Barclays and Lloyds had another reason to suffer after the Financial Times reported they are being investigated by US authorities for potential violations of sanctions against Iran, Libya, Cuba, and Sudan.

Barclays was down 12-1/4 at 355, Lloyds lost 12 to 428-1/4, while RBS dropped 14-3/4 to 352-1/2. Concerns over whether a takeover from Brazil's Vale will materialise put Xstrata under pressure, down 2 at 3,960. On the second tier, International Personal Finance jumped 14 pct, or 28-1/4, to 230 on well-received full-year results, while Merrill Lynch repeated its 'buy' view in reaction, encouraged by strong revenue numbers.

Engineering services company IMI was among the top risers, up 39-1/2 at 429-1/2, after it reported better-than-expected results. Balfour Beatty climbed 27-3/4 to 457-3/4 after reporting full-year pretax profit at the top end of expectations, following a "very good" year.

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IG Group gained 34-3/4 to 381-3/4 after a positive trading update with Landsbanki and Daniel Stewart to reiterate their 'buy' stances, while Merrill Lynch retained its 'neutral' recommendation.

In broker generated news, Telecity rose 13-1/4 to 241 after UBS initiated coverage on the group with a 'buy' stance and target of 300 pence. Wood Group was 22-1/2 firmer at 420-3/4 after UBS upgraded the group to 'buy' from 'neutral', according to traders, and raised its target to 475 pence from 465.

International Ferro Metals ticked up 7-3/4 at 140 as Numis repeated its 'buy' stance and raised its price target to 180 pence from 165 pence following interim results on Monday. Partygaming lost 2-1/2 pence to 25 after it announced the surprise departure of its chief executive Mitch Garber along with its full-year results today.

Johnston Press fell 5-1/2 to 182-3/4, after it said print advertising markets looked set to remain "challenging" in the year ahead.

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Paris shares close up on bargain-hunting after five days of losses

The CAC-40 index finished up 80.51 points or 1.72 pct at 4,756.42. Among CAC-40 stocks, 38 closed higher and 2 closed lower. On the Matif, March CAC-40 futures were trading at 4,767.50. On the broader indices, the SBF-80 index closed 132.54 or 2.46 pct higher at 5,509.57 and the SBF-120 ended 61.66 or 1.82 pct higher at 3,450.74.

The euro was quoted at 1.5294 usd compared to 1.5221 usd late yesterday after passing through the level of 1.53 usd for the first time during the afternoon.

In Paris, Vallourec led the CAC-40 gainers after recovering from heavy opening losses following the publication of full-year results after the market closed yesterday, as the market shrugged off disappointing figures and margin guidance to focus on the prospect of higher pricing power and cost savings.

Cheuvreux analysts raised their stance on the seamless tube-maker to 'outperform' from 'underperform' in the wake of the 2007 results, saying the group has changed its tone and is now giving a more positive outlook on pricing power than a month ago.

The broker also highlighted the announced cost saving plan, and said EPS is to be increased. Merrill Lynch noted that that outlook "appears to be improving despite the headwinds coming from the deterioration of the eur/dollar exchange rate and the increases in raw materials."

Maintaining their 'buy' stance, analysts at the US brokerage said they expect the group to implement price hikes of 15-20 pct in 2008 as contracts start rolling over (as of mid-April). Moreover, the cost cutting plan is "a positive - albeit gradual - step towards improving Vallourec's competitiveness," the analysts said.

Unveiling 2007 net profit of 986.2 mln eur last night, slightly below consensus estimates, Vallourec confirmed that it plans to pass on via price increases the impact of changes in the euro-dollar exchange rate and of higher raw material costs, notably "the recent surge in iron ore prices". The group also announced a plan to achieve annual cost savings of more than 200 mln eur by 2010 at its existing sites.

Vallourec shares closed 10.19 or 7.49 pct higher at 146.22. In other sectors, financial and auto stocks performed well after leading the losses yesterday. Credit Agricole ended the session 0.99 or 5.75 pct higher at 18.20 after the release of its full year earnings before the market opened. "The results were worse than expected and also the impact from the credit crises was bigger than expected, but on an operational basis, the numbers are significantly better," said analyst Marta Sanchez at Ahorro Corporacion Financiera.

Traders also noted investors were relieved the rumours over a much larger writedown proved unsubstantiated. Some analysts had expected a fourth-quarter net loss of as much as 1.5 bln eur, with many forecasts clustered around 550-600 mln eur.

Fellow banking stocks also closed higher, with Societe Generale up 2.20 or 3.26 pct at 69.62, Dexia rising 0.44 or 2.92 pct to 15.50 and BNP Paribas gaining 1.45 or 2.48 pct to end the session at 59.86. Among auto-related stocks, Michelin posted the largest gains, ending the day 2.46 or 3.94 pct higher at 64.88, while Peugeot gained 1.50 or 3.04 pct to 50.81. Renault was up 1.37 or 2.05 pct at 68.13.

One of only two fallers was EDF, ending 0.32 or 0.55 pct lower at 58.32 amid renewed talk the group has taken a 6 pct stake in Spanish utility Iberdrola. "The rumours aren't new and I think it came up again because Albert Frere said yesterday that he has reduced his stake," analyst Per Lekander at UBS said.

Veolia Environnement lost 0.90 or 1.60 pct to close at 55.35. The group is due to post its full year results on Friday.

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German shares close higher, tracking Wall Street, MAN leads gainers

The DAX closed up 138.67 points or 2.12 pct at 6,683.71. The MDAX added 200.67 points or 2.27 pct to 9,056.56, while the TecDAX advanced 12.50 points or 1.64 pct to 775.60. DAX futures were up 103.00 points or 1.56 pct to 6,696.00, while bund futures lost 0.35 points or 0.30 pct to 117.18.

The euro was trading at 1.5283 usd, compared with 1.5263 in afternoon London trade. Leading blue chips higher, MAN shares jumped 4.48 eur or 4.94 pct to 95.09 as the heavy truck manufacturer raised its 2007 full-year dividend to 3.15 eur per share from 2.00 a year earlier.

Continuing M&A speculation also boosted the share price. Wirtschaftswoche reported, citing company sources, that VW wants to fully acquire MAN this year. However, a VW spokesman dismissed the report saying that no such plans exist.

Deutsche Boerse rose 4.04 eur or 3.93 pct to 106.88, recovering from yesterday's weakness after February trading numbers disappointed. Siemens gained 2.71 eur or 3.27 pct to 85.47.

Commerzbank was up 0.69 eur or 3.71 pct at 19.30, benefiting from media reports that said a rescue plan for troubled monoliner Ambac is still in the works. The reports already helped trigger a recovery in banking shares in late trade in US markets yesterday.

Continental added 2.13 eur or 3.54 pct 62.24, erasing some of yesterday's strong losses provoked from weak US auto sales data for February. At the other end, Henkel lost 0.08 eur or 0.28 pct to 28.50 as today's sole decliner after ABN AMRO reduced its target to 34 eur per share from 45 eur but reiterated its 'buy' rating on the shares.

BMW also underperformed, rising 0.07 eur or 0.20 pct to 35.35. Adidas also closed weaker than the market, adding 0.13 eur or 0.31 pct to 41.58, after going on a roller-coaster ride that saw the stock rise to the top of the DAX and then plunge again.

Traders said investors had been alternately concentrating on the weak results in the sport equipment manufacturer's Reebok unit and robust back orders for the rest of the company while looking over the fourth-quarter figures Adidas published today.

MDAX-listed Deutz gained 0.59 eur or 9.04 pct to 7.12 as today's strongest mid-cap performer, while Norddeutsche Affinerie lost 0.87 eur or 3.40 pct to 24.71. On the TecDAX, Ersol Solar ascended 3.93 eur or 6.60 pct to 63.51, while Wirecard declined 0.19 eur or 1.75 pct to 10.65.

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Amsterdam shares close up, extending intra-day gains on strong Wall St

The AEX closed up 8.10 points, or 1.86 pct, at 444.40 after opening at 440.49 and trading in the range 436.75-444.96. Government bonds traded lower, while the euro stood at 1.5262 usd, against 1.5221 usd late yesterday.

Unibail-Rodamco led blue-chip gainers, closing 5.71 pct higher at 173.91 eur, as the company said it has signed an agreement to acquire the right to develop one of Scandinavia's largest shopping centres, to be built in Stockholm.

DSM gained 3.68 pct to 29.28 eur after saying it has participated in a 20 mln usd financing round in China's Tianjin Green Bio-Science Co Ltd (TGBS). Financials posted strong gains, with Aegon climbing 2.62 pct to 9.81 eur ahead of fourth-quarter results due out tomorrow.

ING added 2.04 pct to 22.04 eur as it said it will unwind its Postkantoren joint venture with TNT in the Netherlands, a move that will see ING's Postbank services transferred to ING's retail banking outlets away from TNT Post branches.

Fortis was 2.02 pct higher at 14.67 eur after saying it has signed a frame agreement with Vinci to merge their car park activities in a deal that would give Vinci an unspecified majority stake in the new entity and create the world's biggest player.

On the midcap, Fugro climbed 6.04 pct to 50.0 eur ahead of results due Friday. Wavin added 4.87 pct to 7.54 eur, brushing off a Merrill Lynch downgrade to 'neutral' from 'buy'.

Super de Boer gained 1.64 pct to 4.33 eur as it reported better-than-expected 2007 results and returned a full-year profit compared with a loss in 2006 following a massive restructuring effort, as it guided for a further increase in its operating result in 2008.

KPN was 1.13 pct stronger at 12.54 eur as it said it has agreed to take a majority stake in Ortel Mobile, with the remaining shares to stay in the hands of Ortel's senior management. Tele Atlas was the only blue-chip decliner, off 0.22 pct at 27.20 eur.

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