UK/Euro Financial Market Daily Evening Briefing 05-12-2007

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London shares close sharply up; housebuilders bounce; Wall Street strong

At the close, the FTSE 100 index was 178.6 points, or 2.8 pct, ahead at 6,493.8, the high for the session. The FTSE 250 index rose 242.6 points today to 10,511.0.

Volume was moderate, with 2.39 bln shares changing hands in 716,614 deals.

In the US, the Dow Jones Industrial Average was up 183 points at 13,432 around the time the London markets were closing. The S&P 500 was up 17.86 points at 1,480.65.

Wall Street shares rose after a report showed hiring in the US private sector expanded at a faster pace in November. ADP Employer Services said 189,000 jobs were added during the month -- an increase that bodes well for consumer spending.

On the UK macro front, observers said the Bank of England is more likely to cut the base rate from 5.75 pct after a key survey of the services sector found growth running at its slowest rate for four and a half years.

The monthly purchasing managers index from the Chartered Institute of Purchasing and Supply for the services sector fell to 51.9 in November, its lowest level since May 2003, from 53.1 the previous month.

The scale of the drop was unexpected. Analysts polled by Thomson Financial News were expecting a far more modest decline to 53.0.

Meanwhile, house prices in the UK slumped in November by their biggest monthly rate in nearly a year as previous increases in borrowing costs took their toll, a closely-watched survey of the sector found today.

If there is no rate cut tomorrow, most economists think one will come in January or February.

Shares in housebuilders, some of which slumped yesterday, rose. On the one hand, weakening house prices may appear to be negative. On the other, the increased chances of a rate cut could help them.

Jimmy Yates, dealer at CMC Markets, said: "It's been an upbeat day for the London index as speculation of a quick rate cut continues to build. The fact the Dow opened positive is also helping lift sentiment. Tomorrow's rate verdicts from London and Frankfurt (by the ECB) will clearly hold a lot of weight but ahead of this equities do seem to be on something of a roll in general."

Housebuilders' shares, which slumped yesterday, raced to the top of the FTSE 100 leaderboard today. Taylor Wimpey rose 15-3/4, or 8.4 pct, to close at 203-1/4, making it the top FTSE 100 riser, while Barratt Developments advanced 26-1/2 to 467-3/4.

However the weakness in their shares recently means that both companies are struggling to keep their place in the FTSE 100 at the quarterly reshuffle, based on prices at the close on December 11. Persimmon, up 36-1/2 to close at 796 today, is the only housebuilder which can be confident of staying in the top flight.

Currys and PC World owner DSG International rose 6.6 to 115.5, bouncing from weakness. Its chances of remaining in the FTSE 100 after the reshuffle are slim.

The miners, fuelled by ongoing M&A talk and higher commodity prices, also contributed to the index's rise.

Rio Tinto was 205 higher at 5,720 on the back of yesterday's rumours that Baosteel Group, China's largest steelmaker, is launching a counter-bid to the BHP Billiton merger proposal. BHP was also higher, up 84 at 1,647.

Kazakhmys took on 36 to 1,336, and Vedanta Resources climbed 120 to a record 2,344, despite going ex-dividend.

Oil stocks also experienced a surge, as oil prices rallied back above 90 usd per barrel in London and New York after OPEC delegates confirmed there would be no output increase.

This confirmation came after this morning's quota meeting in Abu Dhabi, despite recent pressure from consumer nations.

Index heavyweight BP rose 21 to 608-1/2, while Royal Dutch Shell took on 67 to 2,004.

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Oil prices rose sharply to more than 90 usd a barrel today as OPEC members said they would keep output ceilings steady. Expectations that a weekly US petroleum supply report due later Wednesday would show a small decrease in crude inventories also supported prices.

Libya's chief oil official, Shokri Ghanem, said the Organization of Petroleum Exporting Countries, meeting in the United Arab Emirates, had agreed to keep production unchanged.

Other delegates said the 13-nation group will meet again in January for a review of winter demand and the world economy, which seemed to indicate that OPEC was prepared to increase quotas should prices go much higher.

The weekly US petroleum supply report boosted prices by showing a decrease in crude inventories. But January Brent crude futures pared earlier gains and were recently up 80 cents at 90.25 usd a barrel on the ICE Futures exchange.

British Airways ended the day 5-3/4 ahead at 328-1/4 though it had been higher before its November traffic figures.

BA said traffic measured in revenue passenger kilometres rose 2.4 pct compared with November last year and that its load factor -- how full its aircraft were -- was up 0.6 percentage points on the same month last year to 73.1 pct.

Banks, meanwhile, bounced back from recent losses. Standard Chartered closed up 46 pence, or 2.5 pct, at 1,893, after its trading statement.

The Asia-focused bank said that it is performing strongly, helped by strong economic conditions, good local currency liquidity and benign credit conditions.

Barclays rose 15-1/2 to 554, while HBOS was 27-1/2 ahead at 799-1/2. Royal Bank of Scotland rose 26-1/2 to close at 465-3/4, ahead of its trading update tomorrow.

However, Northern Rock was among today's handful of casualties, off 3 at 100, with The Times reporting the consortium led by Luqman Arnold, the former Abbey chief executive, is expected to table a revised bid for the mortgage lender by the end of tomorrow.

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The Daily Telegraph reported that the government has drafted a nationalisation bill for Northern Rock to bring the stricken bank into public ownership as early as February should it fail to strike a deal with a private buyer.

Only seven FTSE 100 shares fell today, and three of the fallers were going ex-dividend.

Among the midcaps Game Group was the top riser, closing up 28-1/2 at 209, after the UK Competition Commission cleared the group's acquisition of Games Station, which Altium Securities says clears the way for the group to be bought.

Stagecoach, meanwhile, gained 15-3/4 at 244-3/4, after the group said strong performances in its bus and rail operations in the UK and US helped it to boost operating profit by 24 pct to 100 mln stg.

Colt Telecom rose 21, or 11.3 pct, to a new 12-month high of 206, as speculation persists that US giant AT&T will make a bid.

Turning to the fallers, Carpetright dropped 20 to 1,015, amid doubts Lord Harris will go ahead with a bid, and with analysts expected to cut full-year forecasts after interims.

Debenhams, which also went ex-dividend, recovered from earlier losses that saw it reach its lowest point since re-floating in 2006, to close up 1/4 penny at 89-1/4, despite Dresdner Kleinwort cutting its stance to 'reduce' from 'hold' and its target to 80 from 100. Goldman Sachs cut its target to 99 from 120, retaining its 'neutral' stance.

UK Diary of Event:

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 up as US stocks rise; Opec news boosts energy shares 

The CAC-40 index finished up 111.86 points or 2.02 pct at 5,659.07.

Among CAC 40 stocks, one closed lower and 39 closed higher. On the broader indices, the SBF-80 index closed 104.72 points, or 1.65 pct higher at 6,434.56 and the SBF-120 ended 79.03 points, or 1.97 pct higher at 4,096.13.

The euro was quoted at 1.4658 usd, compared to 1.4754 usd yesterday.

"We are in an extremely volatile market, in which the shifts between sectors is very difficult to predict," said one Paris-based trader. For example, yesterday the automotive sector was down a lot and today it is among the biggest gainers," he said.

Renault rose 3.76 or 3.94 pct to close at 99.10, Michelin rose 2.68 or 3.55 pct to end at 78.20, while Peugeot was up 1.73 or 3.44, closing at 51.97, helped by details of a bonus scheme for the purchase of fuel efficient vehicles.

Alstom was the day's biggest gainer, however, closing 6.98 or 4.80 pct higher at 152.48. As an energy-related stock, the group benefited from the news that Opec is to maintain current production levels.

According to a local dealer, however, Alstom also has a high beta, which is a measure of its volatility in relation to the index. So when the index rebounds, Alstom tends to outperform, and vice versa.

Another dealer also pointed to news of substantial contract wins for the engineering group in Algeria, which are also buoying positive sentiment.

The group's CEO Patrick Kron also said in an interview earlier today on France's Europe 1 radio that he is in favour of a merger with Areva, and that the two companies have the opportunity to create a "French energy champion".

Last month Areva CEO Anne Lauvergeon said a merger between nuclear power plant maker Areva and conventional power plant maker Alstom, which is thought to be favoured by the French government, would have significant negative synergies, while positive synergies would be limited. Areva was also up, gaining 4.15 or 0.56 pct to close at 744.15.

On the CAC-40, other energy stocks were in the spotlight. Gaz de France ended the session 1.15 or 3 pct higher at 39.50.

GDF was boosted by a report in French daily La Tribune claiming the utility group plans to seek government approval to hike its gas fees by more than 10 pct for industrial customers and by 5-6 pct for small businesses and retail customers.

According to a local dealer, the fact that Sarkozy didn't mention freezing gas prices in his speech on consumer spending power last week raises the possibility of a rise. "Now this morning's news in La Tribune is refocusing attention on the issue," he added.

Total also fared well, rising 1.51 or 2.75 pct to 56.33. The group announced late in the day that it has signed a deal with China's Sinopec to take a 40 pct stake in two onshore exploration blocks in Yemen.

EdF posted more modest gains, rising 0.79 or 0.97 pct to close at 82.16.

On the downside, France Telecom was the only stock to close lower, ending the session 0.42 or 1.61 pct lower at 25.69 after disappointing the market with comments from its investor day.

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German shares close up, higher Wall Street helps DAX extend earlier gains

The DAX closed up 135.83 points or 1.74 pct at 7,944.77 after trading between 7,842.62 and 7,953.94.

The MDAX added 197.65 points or 2.04 pct to 9,879.88, while the TecDAX was up 33.02 points or 3.49 pct at 979.37.

DAX futures were up 132.00 or 1.69 pct at 7961.00, while bund futures were down 0.15 or 0.13 pct at 114.99.

The euro was trading at 1.4657 usd against 1.4672 usd in afternoon trade.

Traders pointed to Wall Street's pronounced gains as giving the DAX -- which was already pointed slightly higher earlier -- a boost.

Wall Street's gains were driven by two macroeconomic reports that showed the US economy is in better shape than some thought, but could still use an expected interest rate cut next Tuesday.

Deutsche Boerse, jumped 5.81 eur or 4.57 pct to 132.82 after Morgan Stanley reiterated its high conviction 'overweight' rating on the German stock exchange operator and raised it price target to 145 eur per share from 122, saying that the company continues to benefit from high market volatility.

Continental shares gained 2.35 eur or 2.75 pct to 87.86 as they corrected from losses yesterday.

ThyssenKrupp shares were up 0.66 eur or 1.75 pct to 38.2, also rebounding from losses yesterday, which were prompted by some key full-year numbers that came in below expectations.

The remaining gainers were largely driven by corrections from recent losses.

At the other end of the DAX, Fresenius Medical Care edged 0.06 eur or 0.16 pct higher to 38.50, gaining the least among DAX members.

Dresdner Kleinwort cut its stance on the dialysis company to 'hold' from

'buy' and reiterated its 40 eur target price. In a note to clients, the brokerage said the downgrade reflects the strong performance of the stock over the last month.

Allianz advanced into positive territory, up 1.64 eur or 1.19 pct a 139.25, but was underperforming the market after Merrill Lynch cut its stance on the shares to 'neutral' from 'buy' as part of a review of the European insurance landscape.

Over on the MDAX, construction stocks were in demand as  traders and analysts pointed to positive effects after Leighton Holdings, the Australian unit of MDAX-listed Hochtief AG announced it had won orders worth more than 640 mln eur in Abu Dhabi and Dubai.

Pfleiderer led the mid-cap index, jumping 0.91 eur or 6.83 pct to 14.24. Bilfinger Berger was up 3.30 eur or 6.35 pct at 55.30, while Hochtief climbed 5.24 eur or 6.07 pct to 91.50.

At the other end of the MDAX, K+S lost 4.47 eur or 2.98 pct at 145.32, at the bottom of six decliners.

TecDAX-listed Nordex was the best performer on the index, up 3.71 eur or 11.56 pct at 35.79, after it won an order worth 140-150 mln eur from wpd think energy GmbH Co KG to deliver 21 turbines for the Baltic 1 wind park.

Conergy shares added 2.45 eur or 10.23 pct to 26.4 due to a rebound in solar stocks.

Carl Zeiss, meanwhile, had the worst showing, down 0.27 eur or 1.92 pct at 13.8, as the sharpest of seven decliners.

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Amsterdam shares close higher as strong US economic data lifts sentiment

The AEX closed up 10.28 points or 2.07 pct at 507.80, after reaching an intra-day high of 508.65 and opening at 499.67. Government bonds traded mixed, while the euro stood at 1.4653, against 1.4756 usd late yesterday.

Oil-services group SBM Offshore led blue chip gainers, adding 5.82 pct to 23.82 eur after saying it is in the running for a large contract, worth about 1.2 bln usd, from Brazilian oil company Petrobras.

ASML added 3.86 pct to 23.70 eur as trade data showed that semiconductor prices, including DRAM chips, posted strong recent gains and a healthy year-on-year increase in October.

TomTom was 3.66 pct higher at 59.89 eur on bargain-hunting following heavy losses yesterday. The company announced a co-operative project with Google Maps earlier today.

In the financial sector, Fortis gained 3.32 pct to 18.34 eur, ING added 1.81 pct to 26.47 eur and Aegon closed 1.34 pct higher at 12.09 eur.

Heineken gained 1.68 pct to 44.81 eur. Scottish & Newcastle tonight denied earlier reports it might be prepared to open talks with the consortium of Carlsberg and Heineken if an offer of 775 pence were on the table.

DSM added 1.39 pct to 34.28 eur as it said it will invest 20 mln eur in a new waterborne resins factory in China.

Logistics company TNT added 0.40 pct to 27.76 eur as it said it is "not afraid" of facing financial repercussions if it decides to freeze or perhaps even abandon current cooperation agreements with local mail distributors in Germany. The company earlier said it has suspended a decision on its German investment in response to the possible introduction of minimum wage requirements there.

Binckbank led midcap gainers, rising 7.04 pct to 10.49 eur. USG People added 4.94 pct to 18.89 eur while LogicaCMG gained 3.68 pct to 1.69 eur as JP Morgan added the stock to its top picks in a small/midcap sector review.

Staffing stocks were the day's only blue chip fallers, with Randstad off 1.75 pct at 28.06 eur and takeover target Vedior down 1.38 pct at 17.89 eur. Vedior fell as investors began to discount the likelihood of a counterbid.

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