UK/Euro Financial Market Daily Evening Briefing 08-11-2007

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London shares close down; NY falls on Bernanke speech; Rio Tinto gains

Leading shares closed down off highs as Wall Street was lower following Bernanke's warning on the economy and the risks of higher inflation with Rio Tinto climbing on news that it has rejected an offer from BHP Billiton.
   
At close, the FTSE 100 index was points down 3.2 points at 6,381.9, from alow of 6,290.30 and off a high of 6,432.3, while the FTSE 250 index was 102.5 points lower at 11,032. Volume was just below average with 2.887 bln shares changing hands in 946,733 deals.

"The FTSE cash index validated a short-term double top pattern yesterday and the outlook is bearish in the short-term. Immediate supports are set at 6290, 6225 & 6110 (double top target). Resistances are set at 6435, 6510 & 6595," according to Trading Central, a technical analysis research firm.
  
Meanwhile, Peter Dixon, UK strategist at Commerzbank said: "The UK market appears to have stabilised with a rally seen in mining stocks driven by BHP Billiton rejected bid for Rio Tinto.
   
"However, the outlook for financials look muted as many British institutions have not yet revealed their full extent of exposure to the subprime crisis. We do not know what the outcome will be for financials," added Dixon. Over in the US, stocks were lower after Federal Reserve Chairman Ben Bernanke warned he expects a raft of economic troubles will cause business growth to slow while inflation risks continue in coming months.
   
He said that record-high oil prices are increasing the risks of higher headline inflation, and said the Fed would not hesitate to contain rising inflation through monetary policy actions "as needed" in the future. At London's close the Dow Jones Industrial Average index was down 59.7 points at 13,238.2, while the Nasdaq Composite index fell 33.55 to 2,715.21 and the S&P 500 index was ahead 2.6 points at 1,478.22.
   
Back on this side of the Atlantic, the Bank of England kept the UK Base Rate at 5.75 pct, as expected. Trevor Williams, chief economist Lloyds TSB Corporate Markets, said he thinks there is still some way to go before the Monetary Policy Committee would need to wield the knife on base rates. Mergers and acquisition talk threw the mining sector into focus, as miners dominated the Footsie leader board.

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This came after news Rio Tinto said it has rejected an offer from rival BHP Billiton that would have given Rio Tinto three BHP Billiton shares for every one Rio Tinto share held. Rio Tinto soared over 21 pct higher, or 946 pence at 5,296, although BHP lost 100 to 1,656.
   
Rio Tinto said it unanimously rejected the proposal as not being in the best interests of shareholders. BHP Billiton said it will continue to seek an opportunity to meet and discuss its proposal with Rio Tinto.Sector peers moved higher on the news, with Xstrata up 348 to 3,573, Anglo American 474 ahead at 3,645, Lonmin adding 134 at 3,400 and Vedanta Resources up 129 at 2,205.
   
BG Group was 88 higher at 989 following news that Galp Energia Tupi Sul oilfield off the coast of Brazil has shown estimated recoverable reserves in the range of 5-8 bln barrels of oil equivalent. BG Group holds a 25 pct stake in Galp Energia.
  
Mitchells & Butlers gained 20 to 630 amid talk that John Magnier and JP McManus have increased their stake in the company. The sector was further bolstered by strong results from Punch Taverns, up 25-1/2 to 928-1/2, as investors -- cautious at the start -- warmed to its sturdy half-way figures today. It said profit before tax and exceptionals for the year ended Aug 18 rose to 282 mln stg from 250 mln on revenues which grew 10 pct to 1.705 bln, compared to 1.546 bln last year.
   
A mixed set of broker reactions to its first-half numbers failed to dampen things at Carphone Warehouse, 1-1/4 higher on 356-3/4, as the mobile phone retailer's results were described as weak by Landsbanki, while Evolution confirmed its confidence in forecasts being met.
   
Earlier, the company said it plans a major roll-out of its joint venture with US retailer Best Buy as it posted first-half pretax profits before amortisation and reorganisation costs of 56 mln stg, up from 14 mln last time. Sainsbury gained 8 at 434 after Morgan Stanley restarted the group as 'equal-weight'. Turning to the downside, financials headed the blue-chip sliders as write-down fears remained.
   
Invesco dropped nearly 5 pct, off 33-1/2 at 650-1/2 as investors said third-quarter profit came in shy of expectations. Others remained bogged down by ongoing credit crunch worries. Barclays fell 27-1/4 back on 486-1/4 and the Royal Bank of Scotland tracking back 23 pence to 415 pence, as Sanford Bernstein & Co suggested that together, they may have to writedown as much as 2.1 bln stg -- Barclays, 1.6 bln, and RBS 0.5 bln.
   
Northern Rock slipped 2 pence to 150.4 as the Daily Telegraph suggested the UK government is considering putting the ailing mortgage bank into administration. Looking at the midcaps, Close Bros topped the risers, 156-1/2 up to 916-1/2, as the UK investment bank rejected a proposed 1.4 bln stg bid from rivals Cenkos Securities and Landsbanki as too low, and said it does not plan any further talks with the pair.

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"The board does not propose to pursue discussions with the consortium," Close Brothers said in a statement, describing the 950 pence per share bid approach as 'wholly inadequate'." Sound numbers lifted Dairy Crest 27-1/2 to 590-1/2, as it reported better-than-expected first-half pretax profits.
   
The dairy foods company said adjusted pretax profit for the six months to end September was 37.1 mln stg, up from 30.6 mln stg the previous year, ahead of the consensus forecast of 36 mln stg. Wincanton rose 7 to 387 after the group posted a pretax profit of 22.1 mln stg for the six months to end-September, up from 15.1 mln for the same period in 2006.
   
The group said it is targeting strong organic growth in the second half after new contract wins from customers including J Sainsbury, Adidas, and restaurant group Tragus boosted interim pretax profits by 46 pct. Turning to the downside, there was less to smile about at Invensys, down 39 to 281, as it reported a drop in second-quarter pretax profit due to currency factors, although Evolution said the numbers demonstrated encouraging momentum.
   
Earlier, Invensys reported a slump in second-quarter pretax profit to 27 mln stg from 48 mln last time. But half-year operating profit rose 19 pct on strong performances from its Process Systems and Rail Group units, despite around 16 mln stg worth of foreign exchange losses.
   
Mapeley's fell back 242 to 1,620 after the group slipped to a pretax loss for the first nine months of the year, hit by non-cash revaluation losses of 45.8 mln stg, and said it is cautious about acquisitions given the changes in capital markets.  

UK Diary of Events

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UK Small Cap Report

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Paris shares close down but company news provides lift from morning lows
   
The CAC-40 index finished down 51.59 points or 0.91 pct at 5,631.63. Among CAC-40 stocks, six closed higher and 24 closed lower. On the Matif, November CAC-40 futures were trading at 5,629.00.
   
On the CAC-40, positive newsflow for individual stocks pulled the index back from lows early in the session.  EADS led the gainers after better-than-expected quarterly sales figures reassured investors. Raymond James analysts said EADS's third-quarter sales of 9.27 bln eur beat their estimates by a full billion eur. "The underlying figures were very good -- clearly something is going right at Airbus," said one analyst. EADS shares ended up 1.39 or 6.47 pct at 22.87.
   
ArcelorMittal gained 0.72 or 1.37 pct to close at 53.30 after an early afternoon surge driven by M&A news as BHP confirmed it made a takeover approach to Rio Tinto, trading sources said. Fellow steel stock Vallourec gained 8.80 or 4.55 pct to close at 202.10.
   
Today's edition of Le Figaro cited unnamed sources as saying the two groups had held initial talks, but added that Lafarge had rejected the idea on the grounds that a tie-up lacked industrial logic.
   
Lafarge lost 0.59 or 0.54 pct to close at 108.75. The Saint-Gobain rumours combined with higher-than-forecast third-quarter net profit helped the stock avoid the downward momentum of the market in the morning. CM-CIC analysts said the figures today should also help to counter concerns over the group's US exposure, which have been weighing on the share performance, and on the market as a whole.
   
"We consider that beyond 2007 and despite strong ongoing uncertainties over in the US, the group's portfolio remains well-placed to grow profits," they commented, while reiterating their 'buy' stance.
Also reacting to the publication of third quarter results was BNP Paribas, which ended the session 0.19 or 0.27 pct lower at 70.51.
   
Natixis analysts said BNP Paribas's figures were ahead of consensus, but noted that the bank gave no details on its exposure to collateralised debt obligations (CDOs), which are a principal focus of market concerns.
   
Other banking stocks were mixed, with Dexia one of the CAC-40's few gainers ending 0.34 or 1.81 pct higher at 19.16 while Credit Agricole lost 0.63 or 2.52 pct to close at 24.40. Societe Generale ended the session 1.22 or 1.16 pct lower
at 103.92.
   
Meanwhile Alstom was Thursday's biggest faller, extending early losses to close 11.63 or 7.17 pct lower at 150.59 after the French engineering group's first half results failed to surprise investors, who had hoped the group would widely exceed consensus .
   
"We were expecting very big news today and that wasn't the case," an analyst at a French brokerage said. "The full-year targets were also merely in line with our forecasts."
   
"No surprise overall," a trader added, noting that investors decided to take some profits after the stock's strong performance in recent weeks. Shares in the group had surged some 28 pct over the past two months.
   
Renault widened losses late in the session after chief executive Carlos Ghosn said in an interview that the company is now entering the aggressive phase of its Commitment 2009 plan.
   
Ghosn noted that when he launched the recovery plan, in February 2006, he had anticipated two difficult years followed by two years of expansion. Renault's 2009 targets include adding an extra 800,000 units in sales compared to 2005, and raising operating margin to 6 pct, compared to 3.2 pct in 2005 and 2.5 pct last year. Renault closed 3.92 or 3.74 pct at 100.99.

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Madrid shares close higher on Santander rise, renewables outperform
 
The IBEX-35 index closed up 103.80 points at 15,945.70, after trading in a range of 15,612-15,968.
   
Equities opened sharply down, depressed by heavy overnight losses in the US and Asia, and remained in the red over the morning as concerns over the credit crisis, escalating oil prices and the tumbling dollar weighed on sentiment.
   
The IBEX-35 index remained down throughout the early afternoon, but came off lows after a flat open on Wall Street, only to turn higher after a surprise announcement from Santander that the bank sold its recently acquired Banca Antonveneta.
   
Santander soared 0.56 eur or 3.88 pct to 15.00. The bank said it has cancelled plans for a capital hike up to 4 bln eur after agreeing to sell the Italian bank. The heavyweight also noted it is considering acquisitions in the medium-term.
   
Renewables were in favour, with Acciona leading the index to rise 13.85 or 6.07 pct to 241.90. Earlier, Deutsche Bank re-started it as 'buy' with a 255 eur target, citing the high quality of Acciona's wind farm assets.
   
Iberdrola rose 0.22 to 11.90 and Solaria put on 1.30 or 5.73 pct to 24.04.
   
Repsol YPF fell 0.07 to 26.64, despite reporting forecast beating nine months results. In a conference call, it said the next two quarters will be "critical" for the planned partial sale of the company's Argentine arm YPF SA.
   
It also said it there is 'upside' in Gas Natural as financial investment. Gas Natural rose 0.58 to 41.58.
   
Frankfurt

German shares close higher on robust company earnings, ECB rates unchanged

German shares closed higher with better-than-expected company earnings and the euro zone central bank's decision to keep its interest rates unchanged supporting the blue chip board.
   
The DAX was up 19.85 points or 0.25 pct at 7,819.47 after trading between 7,701.87 and 7,844.40.
   
The MDAX slipped 49.26 points or 0.48 pct to 10,201.43 while the TecDAX was down 12.93 points or 1.24 pct at 1,030.91.
   
DAX futures advanced 74.50 points or 0.96 pct to 7,856.80 while bund futures gained 0.04 or 0.03 pct to 114.34.

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Amsterdam shares close broadly lower on credit woes; Fortis stumbles

The AEX closed 7.10 points or 1.34 pct lower at 523.17, after trading in a range of 520.97-526.59. Government bonds traded higher, while the euro stood at 1.4695 usd versus 1.4633 usd late yesterday.
   
Fortis shed 7.21 pct to 18.28 eur, leading decliners, after presenting disappointing third quarter earnings and after being unable to completely take away investors worries over its exposure to US sub-prime mortgage markets.
   
Randstad dropped 4 pct tot 34.54 eur as investors were disappointed that the company did not announce a special dividend or share buyback.
   
ING lost 3.03 pct to 28.19 eur afteer Bear Stearns downgraded the bank to 'peer perform' from 'outperform'.
   
Heineken shed 2.12 pct to 46.25 eur, DSM lost 1.91 pct to 37.03 and ASML lost 1.69 pct to 23.30 eur. Aegon lost 1.20 pct to 13.19 eur, as investors were unimpressed by the insurer's third quarter earnings and the announcement of the resignation of its CEO.
   
TomTom ended 0.04 pct lower at 54.99 eur after first gaining on news that the management of Tele Atlas is backing the revised 30 eur per share bid TomTom put out on Tele Atlas yesterday. Tele Atlas rose 1.22 pct to 32.45 eur.
   
Wolters Kluwer edged 0.14 pct higher at 21.59 eur. The publishing company announced that it has completed its 475 mln eur share buyback and started its new 175 mln eur buyback.
   
TNT added 0.63 pct to 27.34 and ArcelorMittal rose 1.41 pct to 53.29 eur after BHP Billiton put out a takeover bid on Rio Tinto.
   
Among midcap shares, Crucell dropped 6.37 pct to 12.50 eur amid profit-taking following yesterday's gains, while USG People lost 4.09 pct to 18.53 and Corio lost 3.08 pct to 55.72 eur, also after strong gains yesterday. Boskalis rose 1.97 pct to 42.98 and BAM led gainers, adding 3.92 pc to 16.44 eur.

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