UK/Euro Financial Market Daily Evening Briefing 05-07-2007

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Shares close weak; NY down; Wolseley lower, update fails to inspire

London shares closed lower as Wall Street remained weak with Wolseley down in the blue chips after an update failed to inspire.

Be close, the FTSE 100 index was down 37.9 points at 6,635.2, having been as high as 6,691.8 and as low as 6,625.8. The FTSE 250 index was 31 points lower at 11,802.84. The remaining indices were mixed.

Volume was average, with 3.1 bln shares changing hands in 539,902 deals.

Wall Street fell in morning trading Thursday after dealmaking news lifted some sectors, but investors remained jittery about rebounding bond yields and data on the US service sector.

The Institute for Supply Management (ISM) non-manufacturing business index rose to 60.7 in June.

Economists were expecting a pullback to 58.1 after the surge in May, given weak mortgage demand and retail sales.

A reading above 50 indicates growth in the sector, while a reading below 50 means contraction.

By London's close, the Dow Jones industrial average was 24.7 points lower, at 13,552.60.

Broader stock indicators were mixed. The Standard & Poor's 500 index was off 3.02 at 1,521.85, while the Nasdaq composite index was up 1.19 points at 2,646.14.

In other economic data, the Labor Department's weekly report on jobless claims showed a modest rise. On Friday, Wall Street will be closely reading the department's report on June payrolls and unemployment.

On the blue chip downside, building materials giant Wolseley was the biggest casualty in the FTSE 100, falling 32 pence to 1,183 after an update failed to inspire the market. The company said it had made five bolt-on acquisitions since the start of the year. The firm has made a total of 41 bolt-on acquisitions since Aug 1, 2006, for a total of 374 mln stg.

Vodafone was another faller, on reports it has lost out on a deal to sell Apple's iPhone. The shares were 4 pence lower at 162.1 after the FT reported that Telefonica's O2 mobile phone unit is set to reach a deal to become exclusive network associate for Apple Inc's iPhone in the UK. The FT said the European iPhone will operate on slower 2.5 generation mobile networks, not the 3G infrastructure of companies such as Vodafone.

Investors continued to switch off ITV, 1.2 pence lower at 113.3. The fall was a continuation from yesterday, when the group reported lower market share. Today, Morgan Stanley cut its earnings estimates for the company.

Elsewhere, ITV was 2.3 pence lower at 112.2 with Morgan Stanley reiterating its 'equal-weight' stance and target of 117 pence, but cutting its earnings per share estimates following yesterday's trading update.

Turning to the blue-chip gainers, miners also lent support after gold prices inched higher, supported by strength in the price of crude oil and ongoing weakness in the dollar, with BHP Billiton up 25 pence at 1,462, and Xstrata 61 pence firmer at 3,170, and Rio Tinto rising 57 pence to 4,001.

Lafite 1998:  06-07.. +91%  v  House Price Index:  06-07..  +7%
Latour 1996: 06-07.. +72%  v  Dow Jones:  06-07..  +14%
Liv-ex 100:   06-07.. +45%  v  Ftse 100:  06-07..  + 9%
CGT - 0% vs CGT- 40%

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Capita Group rose 10 pence to 741-1/2, after Deutsche Bank upped its target to 800 pence from 700 and reiterated its 'buy' rating after highlighting the firm's compelling combination of strong, defensive growth.

Deutsche Bank said it believes that Capita's growth and margin outlook remains compelling.

It believes that strong growth will deliver further share price upside, and this growth has the added attraction of being highly defensive in nature, making Capita one of the most compelling stories in the Business Services sector.

And Lloyds TSB took 6-1/2 pence at 560, boosted by a Citigroup upgrade to 'buy' from 'hold' with a raised target of 650 pence from 600 this morning.

Citigroup highlighted its strategy of modest asset growth, tight cost control, and an increased focus on liability-driven business which it said would deliver double digit earnings growth out to 2010.

It said Lloyds TSB has the benefit of being neither caught up in time consuming M&A activity nor suffering the fall out from pursuing an aggressive growth strategy in a period of rising interest rates.

Elsewhere, Morrison was up 4 at 305-1/2 amid ongoing speculation it is about to sell a portfolio of properties.

Turning to the midcap risers, trading statements were much in focus with Game Group up 13 pence at 195, after the computer and video games retailer said it expects to report continuing robust trading when it updates shareholders at its annual meeting.

And Michael Page International, picked up 35-1/2 pence to 595, after the recruitment firm posted a strong second-quarter trading update, leading Altium Securities to upgrade the stock to 'add' from 'outperform'.

Panmure Gordon also upped its rating on Michael Page, to 'buy' from 'hold', and increased its target to 630 pence from 530.

Elsewhere, insurer Admiral was 19 pence higher to 959-1/2 after UBS upgraded its rating to 'buy' from 'neutral'.

The broker noted that Admiral shares had fallen 25 pct since the beginning of April.

On the downside, Cookson Group lost 53-1/2 pence at 693-1/2 amid some profit-taking following a trading update and despite Bridgewell Securities reiterating its 'overweight' stance.

And Interserve fell 18-3/4 pence to 498-3/4, after saying trade continues to be strong generally with buoyant markets, and it is confident about its outlook for the full year, with Altium keeping its rating at 'buy' and raising its target to 575 pence.

Altium said that, based on the sustained trading momentum across the key operating units, it would be surprised if consensus numbers were not moving forward through the course of 2007.

Shares in Ladbrokes fell 5 pence to 436-3/4 after cautious comments by the UK bookmaker in relation to its retail business overshadowed "significantly increased" levels of high rollers' telephone betting activity in recent weeks.

Ladbrokes also said it continued to trade in line with management's expectations despite challenging trading conditions for UK retail over-the-counter business. Meanwhile, telephone betting operating profit for the six months to the end of June is expected to be around 45 mln stg higher than during the same period of last year, equating to first-half EBIT of 61.6 mln stg. ABN repeated its 'hold' recommendation and 425 pence target on the stock. It believes an LBO bidder could generate a 15-20 pct internal rate of return at a valuation of 460-480 pence per share.

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

UK Small Cap Report

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

Madrid

Shares close lower as bond yields rise; Iberdrola down

The IBEX-35 index fell 82.3 points to 14,907.4, after trading in a range of 14,885-15,025.

Equities opened a touch higher, with the IBEX-35 index pushing through the 15,000 key resistance level, but dipped lower in early ahead of news from the ECB meeting.

Stocks remained in the red over the afternoon after hawkish comments by the ECB president, and were further depressed by Wall Street's early losses as US bond yields rose ahead of key US jobs data due tomorrow.

Iberdrola dropped 0.96 or 2.34 pct to 40.01, on volume of 15.4 mln shares.

Telefonica added 0.01 to 16.56, but off a high of 16.66, on volume 36.1 mln shares.

Among other IBEX heavyweights, Santander shed 0.05 to 13.83 and BBVA lost 0.09 to 18.32.

Acciona ended down 0.25 at 204.0, giving up earlier gains after the European Commission said it has approved its joint takeover bid with Enel for Endesa, off 0.04 at 39.27.

Among selected gainers, Sacyr put on 0.63 to 36.50, while Fenosa added 0.08 to 40.35 after announcing the sale of its stake in Manila Electric Co for 250 mln usd.

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Shares close down on Wall St losses, hawkish ECB comments

The CAC-40 index finished down 38.55 points or 0.63 pct at 6,059.53 on volume of 5.8 bln eur.

Among CAC-40 stocks, 4 closed higher and 36 closed lower.

On the Matif, July CAC-40 futures were trading down 41.0 or 0.67 pct at 6,067.5.

On the broader indices, the SBF-80 index closed down 22.44 or 0.31 pct at 7,251.76 while the SBF-120 ended down 26.11 or 0.59 pct at 4,416.78.

The euro was quoted at 1.3608 usd against 1.3609 usd late yesterday.

The European Central Bank left rates on hold at 4.00 pct today, as analysts had foreseen, but subsequent comments from president Jean-Claude Trichet appeared to confirm that further hikes will be necessary.

EDF was hard hit by the cautious mood among investors, dropping 2.98 eur or 3.70 pct to 77.52 on profit-taking after the stock's gains in recent weeks. The share is still up 41 pct since the start of the year.

Union sources in the gas and energy sector today said the French government had ruled out the idea of a merger between the electricity group and sister company GDF, on the grounds is is "impossible to implement."

However, French economy minister Christine Lagarde said today that all options concerning the stalled merger between Suez and Gaz de France remain open.

Property stocks were also under pressure from interest rate concerns, with Kaufman & Broad dropping 1.46 or 2.51 pct to 56.80, and Klepierre ending the day down 16.29 or 2.02 pct at 121.32.

In the CAC-40, Unibail-Rodamco shed 4.84 or 2.54 pct to end the day at 186.05.

Renault closed down 2.84 or 2.36 pct at 117.67 after today reporting a 3.8 pct drop in first half unit vehicle sales from a year earlier.

Later in the day, however, the group's Romanian subsidiary, car-maker Dacia, gave some grounds for optimism as sales director Jacques Daniel said the company forecasts a 35 pct rise in exports for the current year.

Nonetheless, Renault's downbeat first half sales figures appeared to weigh on the auto sector in general, with tyre-maker Michelin falling 1.22 or 1.16 pct to 103.64 and Peugeot ending down 0.66 or 1.06 pct at 61.44.

Peugeot is due to announce its first half unit sales tomorrow.

Schneider Electric closed 2.46 or 2.31 pct lower at 103.99, after a downgrade to 'neutral' from 'overweight' at JP Morgan, which also cut its target to 104 eur from 110.

The broker said it had previously highlighted the merger with American Power Conversion Corp, whose integration will be one of the key stock drivers over the next 18 months, but warned that the stock may underperform without positive newsflow.

On the upside, Carrefour led the rare gainers, finishing up 1.48 or 2.81 pct at 54.23, after an upgrade to 'buy' from 'neutral' at Merrill Lynch, which gave a target of 59 eur.

EADS ended up 0.05 or 0.21 pct at 24.24, after Dubai International Capital said it bought a 3.12 pct stake for an undisclosed price. The seller or sellers were not identified, nor was the purchase price.

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Stockholm shares closed slightly lower on profit-taking, with SSAB leading the market lower after recent outperformance.

The OMX Stockholm index closed down 0.34 pct at 415.94, while the OMX Stockholm 30 index ended 0.42 pct lower at 1,274.07. Turnover was 20.00 bln skr.

The main sector movers were materials, which closed down 1.08 pct; banks, down 0.91 pct; and telecommunication services, 0.54 pct higher.

The major movers within these sectors included SSAB A, down 2.73 pct at 285.50 skr bid; SEB A, down 2.18 pct at 224; and TeliaSonera, up 1.44 pct at 52.75.

JP Morgan upgraded TeliaSonera to 'neutral' from 'underweight' and lifted its target to 55 skr from 50.

In other news, the Swedish telecoms regulator PTS said TeliaSonera must cut the prices it charges for bitstream access for other operators, Aug 5 at the latest.

Rival operators need bitstream access in order to be able to offer broadband services.

Elekta B closed down 3.62 pct at 113.25, after media reports out of Belgium that equipment supplied by Elekta was part of a combination of radiation equipment that, due to compatability issues, led to patients being incorrectly treated at University Hospital Ghent.

Elekta however, told Thomson Financial News that it did nothing wrong.

Securitas Direct closed up 2.14 pct at 19.10.

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