UK/Euro Financial Market Daily Evening Briefing 06-12-2007

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London shares close down, losing early gains as BoE rate cut is absorbed 

At the close, the FTSE 100 index was down 8.2 points at 6,485.6, off a high of 6,591.8, while the FTSE 250 index was 15.7 lower at 10,495.8. Volume was 2.723 bln shares changing hands in 820,354 deals.

"The rate decision is very welcome and the market has flattened because we have had a good run on expectation. It's better to have travelled than to have arrived." said Mike Lenhoff a Strategist at Blewin Dolphin

In the US, stocks rose as investors, while unimpressed by sluggish retail sales, remained hopeful that companies hurt by the housing crisis will benefit from another interest rate cut and a government plan to keep mortgage rates from spiking.

The Dow Jones industrial average rose 33.73, or 0.25 percent, to 13,478.69, having soared nearly 200 points on Wednesday.

Broader stock indicators also extended their gains. The Standard & Poor's 500 index rose 4.06, or 0.27 percent, to 1,489.07, and the Nasdaq composite index rose 11.48, or 0.43 percent, to 2,677.84.

Back in London, housebuilders reversed earlier gains over concerns today's rate cut may not be enough to stall falling house prices, with Persimmon the biggest faller down 45-1/2 to 750-1/2, while Taylor Wimpey was 3-3/4 lower to 199-1/4 and Barratt Developments dropped 19-1/2 to 448-1/4.

Midcap sector peer Bellway lost 13 to 887-1/2.

Earlier, Bellway said home reservations levels had worsened further since its full-year results in mid-October and were down 12 pct year-on-year, affected by a continuing lack of consumer confidence.

Elsewhere, Kingfisher lost 7.2 at 151.1 after Lehman Brothers cut its price target to 180 pence from 238 pence and Deutsche Bank reducing its price target to 170 pence from 175 pence as demand softens.

Also on the back foot, BskyB lost 5-1/2 to 604-1/2, put under pressure by ABN Amro cutting its price target to 750 pence from 800 although the broker praised BskyB's defensive qualities.

Credit Suisse also remained cautious on BskyB as the company heads towards regulatory and legal issues.

On the upside, banks were encouraged after news at midday the BoE cut its key rate a quarter point to 5.5 pct, saying it sees growth slowing.

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Royal Bank of Scotland ended up 13 pence to 478-1/2 pence, on its reassuring trading update, which told investors profits will be ahead of market expectation for the year, with losses below some of the more pessimistic predictions seen in previous weeks.

RBS, which has seen its share price fall by almost one-fifth since early September due to concerns over the potential impact of the credit freeze, said it expects to write down its debt-related assets by 950 mln stg in the second half. Analysts had predicted write-downs as high as 1.9 bln stg.

The news saw its peers rise, with HBOS up 13-1/2 to 813, HSBC adding 14 to 844 and Northern Rock up 3 to 103.0.

Elsewhere, UK real estates were on the up after Lehman Brothers raised its rating for the sector to 'positive' from 'neutral'.

In reaction, Land Securities moved up 14 to 1,521, Hammerson ticked up 18 to 1,056.

Lehman also lifted Hammerson to 'overweight' from 'equal-weight'. Shares in Hammerson rose 22 to 1060.

Turning to the second liners, Premier Farnell added 4-3/4 to 144-3/4 after the electronics distributor's Q3 numbers came in ahead of consensus with a solid performance seen in its US markets.

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Elsewhere, broker upgrades lifted SIG 35-1/2 to 862-1/2 and Brit Insurance 11-3/4 to 243-3/4.

SIG were upped to 'buy' from 'neutral' at UBS, while Brit was raised to 'neutral' from 'sell by the same broker. However, Micro Focus slumped 16-1/2 to 283-1/2 after H1 earnings failed to impress.

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Paris shares up after hesitant day amid US sub-prime plan, ECB outlook

The CAC-40 index finished up 14.69 points or 0.26 pct at 5,673.76. Among CAC-40 stocks, 26 closed higher, 13 closed lower and one was unchanged. On the Matif, December CAC-40 futures were trading at 5,668.5.

On the broader indices, the SBF-80 index closed 9.75 or 0.15 pct higher at 6,444.31 and the SBF-120 ended up 10.04 or 0.25 pct at 4,106.17. The euro was quoted at 1.4610 usd, compared to 1.4658 usd late yesterday.

 Paris shares fluctuated in afternoon deals, as the reassuring news on the sub-prime front was dampened by the ECB's comments. Announcing that it was leaving its key rate unchanged as expected, the central bank raised its inflation forecast and cut its growth guidance for 2008.

A Paris dealer said ECB president Jean-Claude Trichet took a stern line over inflation and "is brandishing the weapon of (higher) interest rates" if strong headline inflation spreads to wages and domestic prices. Among stocks, financials extended yesterday's rebound on the back of improved sentiment towards the sub-prime market.

Societe Generale climbed 2.66 eur or 2.60 pct to 105.11, after trailing its sector peers yesterday amid rumours it was to announce further sub-prime exposure. Credit Agricole gained 0.36 or 1.53 pct to 23.93, BNP Paribas added 1.13 or 1.49 pct to 76.87, while outside the CAC-40, Natixis rose 0.34 or 2.34 pct to 14.88. In contrast, Dexia slipped 0.06 or 0.34 pct to 17.80, with the Paris dealer citing continued concerns about its sub-prime exposure.

The major bluechip riser for most of the day was Air France-KLM as news that Deutsche Lufthansa AG is withdrawing from the bidding for Alitalia eased worries about Air France-KLM's decision to declare its interest in the Italian carrier.

"Lufthansa's withdrawal from the Alitalia privatisation is good news for Air France as it means there'll be no bidding war," said Radiguet. "The Italian government now has a limited choice between Air France-KLM, which has strong financial means, and a low-cost company (Air One), which means Air France can probably negotiate attractive financial conditions," he said.

Air France-KLM shares ended up 0.55 or 2.36 pct at 23.81.

The biggest bluechip climber at the close was PPR, up 3.20 or 2.84 pct at 115.98, with the retail and luxury group regaining some of its steep losses from the past month.

On the downside, France Telecom fell 0.99 or 3.85 pct to 24.70, as the market continued to sanction the group for uninspiring guidance and a lack of greater clarity at its investor day.

In a note this morning, ABN Amro analysts said France Telecom provided its view of growth potential in its markets, but gave little to show why the group should grow in line or ahead of that.

The shares were also hit by a downgrade from Exane BNP Paribas, which cut its stance on France Telecom to 'underperform' from 'neutral', with a target of 25.2 eur. The broker said it sees too many short-term risks to the stock, including the threat of a fourth mobile telecom operator, and the end of the lock-up on the government's shareholding, which could lead to a major share sale.

Among other fallers, Pierre & Vacances fell 3.42 or 3.66 pct to 90.08, retreating from morning gains as enthusiasm towards its above-consensus full-year results gave way to profit-taking. Investors had already anticipated the strong figures in the run-up to the publication today, driving gains of close to 8 pct yesterday.

NRJ Group fell 0.33 or 4.15 pct to 7.62, hit by a downgrade to '3 Underperform' from '2 Outperform' at Cheuvreux.

The brokerage lowered its target to 8.70 eur from 13, saying the radio broadcaster will be impacted by an expected 9 pct fall in advertising this year.

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German shares close flat, as Wall Street gains offset ECB decisions

The DAX closed down 4.19 points or 0.05 pct at 7,940.58 after trading between 7,998.04 and 7,911.48.
The MDAX lost 56.20 points or 0.57 pct to 9,823.68, while the TecDAX was down 1.06 points or 0.11 pct at 978.31.

DAX futures were down 8.50 or 0.11 pct at 8,044.50, while bund futures were down 0.43 points or 0.37 pct at 115.19. The euro was trading at 1.4610 usd against 1.4620 in London afternoon trade.

Leading shares lower, Merck KGaA lost 2.63 eur, or 2.91 pct, at 87.90, after the European Commission granted conditional marketing approval for Amgen Inc drug Vectibix as a treatment for metastatic colon cancer.

Merck is the sole distributor outside North America of Erbitux, a top competitor to Vectibix. Adidas shares were 0.88 eur, or 1.89 pct, lower at 45.56, with traders pointing to news that the group does not expect a turnaround in the US business of its Reebok unit until 2009.

Auto stocks came under pressure after registration data from the Verband der Automobilindustrie (VDA) came in weaker than anticipated and pointed to a year-on-year drop in 2007.

Shares in Daimler dropped 1.22 eur, or 1.76 pct, to 68.20 on the revised forecast, Volkswagen was down 2.60 eur, or 1.62 pct, to 157.56, while BMW dipped 0.17 eur, or 0.41 pct, to 41.12.

Deutsche Postbank shares eased 0.88 eur, or 1.47 pct, lower at 58.88, after it announced new mid-term guidance that failed to excite the market.

Bucking the negative trend, Continental rose 1.44 points or 1.64 pct at 89.30, while RWE gained 1.65 eur or 1.72 pct, at 97.81 as investors turned to typically defensive utility stock.

Commerzbank gained 0.35 eur, or 1.30 pct, at 27.23 after Societe Generale reiterated its 'buy' rating on the shares and confirmed a target of 35 eur, saying that the bank is better situated than many peers to weather the sub-prime crisis.

Peer Hypo Real Estate was up 0.47 eur, or 1.27 pct, at 37.49, while Deutsche Bank added 0.42 eur, or 0.47 pct, at 89.41. Over on the MDAX, ProSieben lost 0.91 eur, or 5.08 pct, at 16.99, as the worst performer.

Premiere, meanwhile, added 0.32 eur, or 2.83 pct, to 11.62, making it the top gainer on the index as the market cast a sceptical eye on a reported statement by Leo Kirch's KF15 that the group is not interested in taking a 15 pct stake in the German pay TV group.

Over on the TecDAX, GPC Biotech lost 0.30 eur, or 8.65 pct, at 3.17, as the index's worst performer. Wirecard was up 0.67 eur or 5.93 pct at 11.97.

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Amsterdam shares close higher after mixed trading; TNT leads gainers

The AEX closed up 2.63 points or 0.52 pct at 510.43 points, after opening at 510.46 and trading in the range 506.78-515.34. Government bonds traded lower while the euro stood at 1.4610, against 1.4653 usd late yesterday.

Among blue chip stocks in Amsterdam, TNT led gainers, putting on 4.39 pct at 28.98 eur after it said it plans to raise its dividend pay-out ratio by 2010 and confirmed its earlier stated 2007 outlook.

The Dutch government also postponed a planned Jan 1 liberalisation of the domestic postal market as there are too many uncertainties regarding the sector.

Among financials, Fortis gained 2.02 pct at 18.71 as Royal Bank of Scotland said its 2007 profits will beat forecasts and that reassured investors with additional disclosure on ABN Amro, the Dutch bank it bought together with Fortis and Santander.

Other financials also gained, with ING putting on 1.32 pct at 26.82, Aegon gaining 1.08 pct at 12.22 and midcap peer SNS rising 1.12 pct at 15.30. Akzo Nobel gained 2.08 pct at 53.62 eur after it was upped to 'buy' by Deutsche Bank with a price target 65 eur.

Peer DSM gained 0.23 pct at 34.36 as its unit DSM Anti-Infectives said it has signed a partnership agreement with India's Arch Pharmalabs.

Shares in Corporate Express finished 0.51 pct at 5.88, off an intraday high of 6.12, after renewed takeover speculation entered the market, traders in Amsterdam said.

Philips led AEX decliners, losing 1.85 pct at 28.15, while Unibail-Rodamco shed 0.91 pct at 28.15 eur and Ahold slipped 0.40 pct at 10.00. On the midcap, Van der Moolen gained 4.73 pct at 3.32, Heijmans rose 2.22 pct at 25.83 and Wessanen added 1.52 pct at 11.39. Among decliners, BinckBank fell 2.10 pct at 10.27 eur and Vopak shed 1.41 pct at 37.88.

Local issue Imtech closed 3.99 pct higher at 17.22 eur after initially surging more than 14 pct on talk that midcap construction firm BAM will make a takeover approach. BAM later denied it is interested in Imetch and said speculation of a bid is a "false rumour". BAM shares closed 1.04 pct lower at 15.27.

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