UK/Euro Financial Market Daily Evening Briefing 06-02-2008

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London shares close higher; triple-digit NY rally offsets UK rate caution

uK blue chips ended firmer today after a fairly volatile trading session as the benefits of a triple-digit Wall Street rally, after Tuesday's sell-off, offset earlier caution ahead of tomorrow's UK interest rate decision
   
At the close, the FTSE 100 index was 7.4 points firmer at 5,875.4, below a late-morning peak of 5,892.6 but well above the midafternoon low of 5,816.4,
   
However, all the broader FTSE indices ended lower, aside from the FTSE All-Share index, with the FTSE 250 index off 50.8 points at 9,904.5.  Volume was moderate, with 2.378 bln shares changing hands in 743,224 deals.
   
On Wall Street, by London's close, the DJIA was up 104.90 points at 12,370.00, while the S&P 500 index was ahead 12.60 points at 1,349.25. The Nasdaq Composite index was up 22.88 points at 2,332.45.
   
US stocks recovered well after Tuesday's 300-point slide in the absence of any fresh bad news on the US economy, aided by better-than-expected profit results from Walt Disney.
   
IG Index chief market strategist David Jones said: "Maybe the best that investors can hope for at the moment is for the market to continue to consolidate at current levels and for some of the gloomier economic news to start to dry up."
   
In London, BSkyB was the biggest FTSE 100 riser, adding 38 pence at 577 after its first-half operating profits beat analysts' expectations.
   
BSkyB reported as-expected lower first-half operating profits as broadband costs continued to weigh, and the company swung to a pretax loss after it booked a hefty charge for its 17.9 pct stake in ITV.
   
In reaction, Merrill Lynch said BSkyB's results were better than it expected at the profit level although the operating metrics mix, with net subscriber additions reaching 167,000, were below its 178,000 goal.
   
The broker repeated its 'neutral' rating on BSkyB.
   
ITV shares reacted positively to the numbers from its broadcasting peer and shareholder, adding 2.2 pence at 76.6 aided by ongoing bid speculation.    

Elsewhere a broker upgrade provided the impetus for gains in William Morrison shares, ahead 11 pence at 304 after Morgan Stanley upped its stance on the supermarket chain to 'overweight' from 'equal-weight' and raised its target to 330 pence from 310 pence.

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Meanwhile shares in British Energy added 20-1/2 pence at 513 after Goldman Sachs increased its target for the firm to 709 pence from 693 while reiterating its 'buy' rating.
   
The broker said, in its view, British Energy's share price is discounted due to an aggressively negative output scenario.
   
Shares in BT climbed 5-1/2 pence higher to 262-3/4 ahead of tomorrow's third-quarter results from the telecom incumbent, having been upgraded by JP Morgan on Monday.
   
And Xstrata shares added another 45 pence at 3,835 amid talk a 4,500 pence a share bid from Vale of Brazil is imminent.
   
But on the downside with blue chips, most other heavyweight mining issues were in decline today.
   
BHP Billiton was the biggest FTSE 100 faller, ending down 77 pence at 1,520 as Rio Tinto rejected an increased pre-conditional takeover bid from its mining peer, saying the offer significantly under-values the group.
   
Earlier, BHP Biliton had accompanied its latest first half results, with news it will now offer 3.4 of its own shares for each Rio Tinto share, up from a previous 3-for-1 proposal. The company also said it expects to hold talks about its offer with China's Chinalco and Alcoa of the US, which on Friday revealed they had acquired around 12 pct of Rio Tinto.
   
The new offer came as BHP Biliton unveiled below-expectation first half results showing its net profit fell by 2.4 pct to 6.017 bln usd, down from 6.168 bln usd, as rising costs and adverse exchange rates hurt earnings.
   
Meanwhile the bid rejection saw Rio Tinto shares lose 17 pence at 5,417.  Other miners also ended lower reflecting weaker metal prices amid heightened US recession fears after yesterday's poor US ISM data.
   
Vedanta Resources shed 49 pence at 1,882, Kazakhmys lost 9 pence at 1,215, and Antofagasta slipped 1-1/2 pence lower to 674.
   
Elsewhere on the downside, banking issues were under pressure amid uncertainty ahead of tomorrow's Bank of England interest rate decision - Lloyds TSB shed 7-1/2 pence at 425, RBS dropped 5 pence to 378, and HBOS lost 8-1/2 pence at 679.
   
Insurers were also on the back foot, with Aviva shedding 7 pence at 602-1/2 as better-than-expected new business figures were shrugged aside amid sector worries about the impact of a possible US recession.

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Among Aviva's peers, Legal & General shed 2.9 pence at 127.3, with Friends Provident down 2.6 pence at 135.2.
   
Also among the blue chip fallers, a broker downgrade knocked Johnson Matthey shares 39 pence lower to 1,900 with Citigroup cutting its stance to 'hold' from 'buy' on valuation grounds.
   
On the second line, Expro International was the top FTSE 250 casualty, dropping 61 pence at 947 after Goldman Sachs cut its rating on the firm to 'sell' from 'neutral', and reduced its price target to 950 pence from 1,070.
   
The move was part of an European oil services review, with Goldman Sachs saying the UK company has low growth and is trading at a premium.
   
Expro's peers Petrofac and Wood Group were also lower, respectively losing 26-1/2 pence at 515-1/2 and 14-3/4 pence at 384-1/4.
   
But on the upside, Northern Rock was the biggest FTSE 250 riser, adding 8 pence at 98, bucking the weaker trend in the banking sector amid increasing hopes that a takeover of the stricken mortgage lender will be forthcoming. Hedge fund SRM Global Master said today it had upped its stake in Northern Rock to 10.77 pct
   
And Homeserve was also in demand, up 75 pence to 1,750 after a reassuring trading update which prompted Seymour Pierce to upgrade its rating on the stock to 'buy' from 'hold'.
   
The emergency home repair services company said business since Oct 1 2007 continues to perform well and is in line with its expectations. 

UK Diary of Events:

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UK Small Cap Report:

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Paris shares close higher, rebounding from sharp losses Tuesday

The CAC-40 index ended up 39.57 points or 0.83 pct at 4,816.43. 28 CAC-40 shares closed higher and 12 closed lower. The SBF-120 index was 0.69 pct or 24.01 points higher at 3,488.41. The euro was trading at 1.4650 usd, against 1.4623 usd at midday.
   
Societe Generale rose 3.22 pct or 2.55 eur to 81.75 on persistent takeover rumours, but analysts and dealers also pointed to the impending capital increase as a factor lending support.
   
The increase comes with preferential subscription rights for existing shareholders, which may be prompting investors to buy into the shares in order to qualify for the issue and pick up stock at a discount.
   
Societe Generale's board is meeting this afternoon to decide on the terms of the capital increase, and French daily Le Figaro today claimed investors could be offered a discount of 20-30 pct to the current share price.
   
EDF was the day's leading gainer on the CAC, climbing 3.51 pct or 2.33 eur to 68.73, rebounding from three-days of losses on the back of continuing speculation of a bid for Iberdrola in Spain.
   
Other leading gainers included Unibail-Rodamco. The property developer rose 3.14 pct or 4.90 eur to 160.90, benefiting from upbeat broker notes ahead of its full year earnings due out before the market open Thursday.
   
UBS yesterday upped its stance to 'buy', describing the property group as a defensive giant with attractive options.
   
Vallourec was the main casualty of the day, as investors shrugged off the company's robust fourth-quarter sales to focus on a questionable outlook for 2008 in the current macroeconomic difficulties. The stock plunged 8.53 pct or 12.08 eur to 129.62, as investors penalised the seamless tube-maker for its cautious 2008 guidance.
   
Societe Generale analysts reiterated their 'sell' rating, saying Vallourec's guidance for flat sales is now lower than their forecasts, while rising input costs and a weaker dollar are set to weigh on profit margins.
   
French brokerage Cheuvreux lowered its stance on Vallourec to 'underperform' from 'outperform' and cut its price target to 150 eur from 205, after lowering its EPS estimates for the group by 4 pct and 11 pct respectively for 2008 and 2009.
   
LVMH gained 1.06 pct or 0.73 eur to 69.71, but reaction to the group's record full-year earnings was still proving subdued amid the recessionary fears.
   
"Initial comments from the conference call are surprisingly relaxed about the economic backdrop," a local dealer said, adding that this might be prompting a sense of wariness in the market. "Investors are probably wondering if they've fully understood what's happening in the economy," he added.
   
Bank stocks were hit by news that ratings agency Standard & Poor's warned of possible downgrades for commercial and investment banks due to difficulties in the bond insurance industry.
   
Credit Agricole fell 1.77 pct or 0.35 eur to 19.37 and Dexia gave up 1.56 pct or 0.25, closing at 15.79.

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German shares closes higher, tracking Wall Street gains

The DAX was up 82.26 points or 1.22 pct at 6,847.51 at the close, having traded between a low of 6,696.94 and a high of 6,861.94. The MDAX gained 101.96 points or 1.17 pct to 8,787.29, while the TecDAX lost 0.36 points or 0.05 pct to 793.99.
   
DAX futures declined 141.50 points or 2.10 pct to 6,877.50, while bund futures shed 0.51 points or 0.43 pct to 116.91. The euro was trading at 1.4638 usd, compared with 1.4652 usd in London afternoon deals.
   
Deutsche Postbank led German blue chips higher, jumping 5.51 eur or 10.70 pct at 57.00, fuelled by renewed takeover and merger speculation after a report in Financial Times Deutschland said that the bank's parent company, Deutsche Post World Net AG, has held talks about merging the bank with another major European peer.
   
Philipp Haessler, analyst at Equinet, said it is likely Deutsche Post will attempt to push through a merger of equals strategy, but would probably settle for a junior partner role. Parent company Deutsche Post, meanwhile, was 0.43 eur or 2.00 pct firmer at 21.94.
   
TUI shares added 0.89 eur or 6.16 pct at 15.34, after a report in the Financial Times Deutschland said the shipping and tourism giant is in talks with Singapore-based Temasek Holding Pte to merge their shipping operations to create world's the third-largest shipping company.
   
Bayer gained 2.02 eur or 3.78 pct at 55.50, while MAN added 3.29 eur 4.04 pct at 84.69, boosted by strong earnings figures released by peer Scania.
   
At the other end of the DAX, Infineon fell 0.31 eur or 4.42 pct at 6.70 as investors position themselves ahead of the company's first-quarter results tomorrow.
   
BMW slid 1.01 eur or 2.80 pct at 35.11 after cost cuts announced by the automaker disappointed investors who seemed to be hoping for a more rigorous programme. Deutsche Boerse lost 1.97 eur or 1.71 pct at 113.38, mostly on technical trading grounds, traders said.
    
On the MDAX, Hugo Boss won 4.42 eur or 12.43 pct at 39.97 after its full-year results beat expectations. In particular pretax profit of 212 mln eur topped forecasts, traders said.
   
At the other end, Premiere lost 0.58 eur or 4.14 pct at 13.43, after the pay-TV provider said full-year 2007 sales fell to 984.5 mln eur from 1.055 bln after "criminal hackers" circumvented the pay-TV operator's encryption system, enabling them to receive its programs without paying a fee.
   
The security breach has had "an impact on the business development and growth" of Premiere since December, the company said.
   
TecDAX-listed Conergy was the worst performer on the index, falling 4.14 eur or 23.93 pct to 13.16 after the alternative energy company reported disappointing full-year figures yesterday.

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Amsterdam shares close higher, boosted by confident Wall Street

The AEX closed up 5.52 points or 1.26 pct at 442.33, after opening at 431.33 and trading in the range 431.24-442.69. Government bonds traded lower, while the euro stood at 1.4632 usd compared with 1.4648 usd late yesterday.
   
DSM led blue chip gainers, climbing 5.37 pct to 29.41 eur after Dutch shareholders association VEB asked the company to provide details about the mining concessions it still holds in the south of the Netherlands and the possibility of a resumption in mining. A Dutch newspaper report said the company is now mulling a reopening of the coal mines, although DSM have yet to comment.
   
SBM Offshore added 3.81 pct to 20.72 eur, boosted by news from Norway that peer Seadrill has increased its stake in Scorpion Offshore, prompting analysts to say that only "the price and the timing" of a takeover remain unknown.
   
Unibail-Rodamco gained 3.52 pct to 161.03 eur, ahead of earnings due tomorrow, seen as being strong. Yesterday UBS upgraded Unibail-Rodamco to 'buy' from 'sell', with an increased target of 175 eur, from 148, describing the merged company as a defensive giant with attractive options.
   
ArcelorMittal gained 3.06 pct to 46.80 eur, as the steel giant confirmed it bid around 60 mln usd to win the licence to build a new steel plant in Egypt, a deal announced yesterday by Egyptian officials.
   
KPN put on 1.38 pct to 12.52 eur, as Lehman Brothers upped its target to 16 eur from 15 and reiterated an 'Overweight' rating, saying KPN's new mid-term targets are "ambitious", and "are supported by management's proven track record in cost restructuring and commitment to return surplus cash to
shareholders".
   
On the midcap, Boskalis Westminster gained 1.50 pct to 37.91 eur. The company said today it expects to start its 300 mln eur dredging work in the port of Melbourne either tomorrow or Friday ahead of an Australian Federal Court hearing about the environmentally sensitive project on Feb 20.
   
Heineken led the handful of decliners, off 3.69 pct at 36.30 eur, as Goldman Sachs forecast a sharp slowdown in underlying net profit growth this year for the Dutch brewer.
   
TomTom fell 2.67 pct to 35.02 eur, as investors took fright from a profit  warning issued last night by San Francisco-based satellite navigation components supplier SiRF, citing demand softness from two major customers.

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