UK/Euro Financial Market Daily Evening Briefing 12-02-2008

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London shares close higher; financials rally; NY up on Buffett bonds move

At the close, the FTSE 100 index was 202.3 points firmer at 5,910.0, the session's peak, having rallied from an early morning low of 5,710.0.

All the broader FTSE indices ended higher, with the FTSE 250 index up a massive 304.8 points at 10,040.3. Volume, however, was a touch below average with 2.50 bln shares changing hands in 764,547 deals.

On Wall Street, by London's close, the DJIA was 214.10 points higher at 12,454.10, while the S&P 500 index was 20.55 points firmer at 1,359.70, and the Nasdaq composite index gained 25.08 points to 2,345.14.

Investors reacted to Buffett's comments in an interview on CNBC that he will offer a second level of insurance on up to 800 bln usd in municipal bonds, which eased some of Wall Street's concerns about further deterioration in the credit markets.

In London, financial issues rallied in tandem with the easing of credit market concerns and as equity market valuations rose. Inter dealer broker ICAP was the top FTSE 100 gainer, rallying 47 pence higher to 703.

Banking issues pushed higher ahead of the sector reporting season, which kicks off tomorrow with mid-cap mortgage bank Bradford & Bingley, helped by news UK January CPI inflation was a touch below forecast at 2.2 pct, which may open up possibilities for further Bank of England rate cuts.

Jimmy Yates, dealer at CMC Markets said: "As always, the prospect of falling yields on cash will push investors into equities, but the banking stocks have also been seen as winners today given their general adversity to higher interest rates."

Barclays, which reports results next week added 26-1/2 pence at 455-3/4, with Cazenove reiterating its 'outperform' stance in a sector review focusing on the credit crunch implications.

Among other blue-chip banks, HBOS took on 37 pence at 673, RBS gained 14-3/4 pence at 374, and HSBC firmed 32-1/2 pence at 745.

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Elsewhere insurers, hit yesterday by worries over the AIG credit default swaps situation, recovered today aided by the Buffett move, with Legal & General adding 7.0 pence at 127.1, Royal & Sun Alliance ahead 5.5 pence at 130.1, and Prudential up 32 pence at 615.

Heavyweight miners were also in demand as US worries eased and commodity prices rose, with the price of platinum hitting another all-time high as investors bought into the white metal amid fears over falling supply from major producer South Africa.

Vedanta Resources was a top FTSE 100 riser, up 128 pence at 2,022, while Lonmin gained 194 pence at 3,300, and Kazakhmys added 67 pence at 1,324.

M&A talk also helped fuel gains in the sector with Rio Tinto and BHP Billiton, gaining 283 pence at 5,523 and 72 pence at 1,555 respectively on hopes for progress in their hostile bid battle.

And Xstrata shares ended 14 pence firmer at 3,819 as the sector recovered having been weaker all day after press speculation the group reportedly rejected a takeover bid from Brazilian mining group Vale, pitched at just under 40 stg per share.

There were only two blue chip fallers by the close today. Admiral Group missed out on the rally by insurers, losing 10-1/2 pence at 924 after having been fairly resilient in the sector downturn yesterday.

And tobacco group BAT shed a penny at 1,852 as its defensive characteristics were unwanted. It was a similar story on the second line, with very few fallers.

Pennon Group was the biggest casualty, losing 13 pence to 651-1/2 after a Goldman Sachs downgrade to 'sell' from 'neutral' on valuation grounds in a sector review. The broker also cut its price target for Pennon to 606 pence from 643.

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Elsewhere shares in Rank Group shed 0-3/4 pence at 98-3/4 after JP Morgan today cut its price target for the leisure group to 115 pence from 125, while retaining its 'neutral' rating.

The broker said it thinks there is 20 pct downside to the current share price, as the UK bingo and casino market comes under further pressure from consumer weakness.

Among the majority FTSE 250 gainers, financial issues featured strongly as well, mirroring their bigger cousins as the market rallied.

Stricken mortgage lender Northern Rock took on 8 pence at 105 ahead of the banking sector reporting season and as investors the next move over a rescue takeover.

Brokerage business Collins Stewart gained 10-1/2 pence at 143, wealth management group St James' Place took on 17-3/4 pence at 241-3/4, and investment banking second liner Investec added 28-3/4 pence at 411-1/4.

Housebuilders rallied as well after the latest UK inflation numbers offered a chink of hope on possible further BoE interest rate cuts - Bellway added 57-1/2 pence at 776, Barratt Developments gained 23-1/4 pence at 402 and Bovis Homes firmed 36 at 589-1/2.

UK Diary of Event:
For a diary of key financial and corporate events in the UK this week, Click here

UK Small Cap Report:
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Paris shares close higher helped by early Wall St gains

The CAC-40 index finished 158.01 points or 3.37 pct higher at 4,840.71. Among CAC-40 stocks, allf 40 closed higher.

On the broader indices, the SBF-80 index closed 176.26 points or 3.30 pct higher at 5,510.54, and the SBF-120 ended up 114.08 points or 3.37 pct at 3,503.90.

The euro was quoted at 1.4609 usd compared to 1.4499 usd late yesterday.

Paris stocks were buoyed by positive news flow for some of the CAC-40's biggest companies, while Wall Street surged in early trading, providing further positive sentiment, after billionaire Warren Buffett offered to help out troubled bond insurers, easing some of the market's concerns about further deterioration in the credit markets.

ArcelorMittal was the CAC-40's biggest gainer ahead of the publication of full year results tomorrow morning. The stock gained 2.94 or 6.36 pct to close at 49.15. The steel producer is expected to publish a full year net profit of around 10 bln usd tomorrow before the market opens, but analysts will be looking for reassurance on the steel producer's ability to face up to an economic slowdown.

Alstom was close behind, gaining 8.10 or 5.94 pct to close at 144.40.

Total rose strongly in the morning, boosted by a sharp jump in oil prices late Monday following a threat by Venezuelan President Hugo Chavez to suspend exports to the US, sparking supply worries. The company is scheduled to report its 2007 earnings early tomorrow.

It finished the session 1.43 or 2.97 pct higher at 49.50.

EDF rose 3.22 or 4.83 pct to close at 69.84. The stock got a boost from a report that EON is considering a takeover of Spain's Iberdrola, which has also been targeted by EDF. Analysts have been lukewarm about the prospect of EDF making a move on Iberdrola, so talk that EON could trump it was seen as good news for the French power giant.

EDF is also scheduled to report its annual sales tomorrow.

Sanofi-Aventis reacted well to the release of solid full year results this morning. The stock gained 0.99 or 1.92 pct to close at 52.50 after the world's number three pharmaceutical firm met its earnings guidance for last year and said it expects a key measure of profits to rise by 7 pct this year.

Alcatel-Lucent was up 0.16 or 3.93 pct at 4.23 at the end of the session. Earlier the group said it will create a joint venture for fourth-generation mobile telecommunications with NEC.

Dexia rose 0.87 or 5.94 pct to end at 15.91 ahead of the publication of full year results after the market closed.

Outside the CAC-40 Thales ended the session 1.64 or 4.40 pct higher at 38.89 ahead of the publication of full year sales figures once the market closed. US-based Hypercom said earlier today that Thales has given it an ultimatum of Wednesday to sign a definitive agreement for the purchase of the Paris-headquartered company's e-Transactions unit, if it wishes to avoid possible costs of 10 mln usd and legal action.

The move comes amid a row that Hypercom is having with its own suitor, Ingenico, which has offered 332 mln usd for Hypercom. Ingenico was one of the day's few fallers, ending the session 0.09 or 0.56 pct lower at 16.11.

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German shares close higher tracking Wall Street

The DAX closed 224.30 points or 3.33 pct higher at 6,967.84 after trading between a low of 6,746.20 and a high of 6,979.23 today.

The MDAX was up 402.94 points or 4.71 pct to 8,963.11, while the TecDAX won 35.26 points or 4.60 pct to 801.12.

DAX futures advanced 183.50 points or 2.69 pct to 6,997.00, while bund futures declined 0.67 points or 0.57 pct to 116.56.

The euro traded at 1.4605 usd against 1.4589 usd in afternoon London trade.

Leading German blue chips higher, Hypo Real Estate surged 1.33 eur or 7.80 pct at 18.39, as its shares received a boost from news of Buffet's initiative.

MAN added 5.11 eur or 6.25 pct at 86.91 as on-going strong demand continues for the heavy truckmaker following a slight correction after it released full-year figures early last week.

Traders also said that an announcement that Volkswagen AG has raised it stake in Scania AB to 37.98 pct from 36.4 pct was an indication that the automaker was still seeking some type of three-way tie-up between its commercial vehicle division and the two heavy truck manufacturers.

Autoshares were in demand as Daimler added 2.65 eur or 5.27 pct at 52.93, BMW charged up 1.61 eur or 4.71 pct at 35.81 and tyre and auto parts specialist Continental AG rose 3.37 eur or 5.26 pct at 67.48.

Bayer shares gained 2.46 eur or 4.47 pct at 57.46 as warmed-over rumours continued that it might be planning to spin off its CropScience unit, possibly through an initial public offering.

At the other end of the DAX, Infineon eased edged up 0.02 eur or 0.35 pct at 5.74. Traders pointed to an announcement from the EU that it performed raids in Germany at the premises of computer chip manufacturer Intel, but Infineon denied that it had been searched.

Deutsche Post was 0.17 eur or 0.78 pct higher at 21.84 as dealers spoke of vague rumours that state-owned KfW Bankengruppe, which holds a 31 pct stake in the mail carrier giant, may issue a convertible note or bond through Deutsche Post to help finance the hard-hit IKB Deutsche Industriebank AG.

Allianz was up 2.17 eur or 1.92 pct at 115.35, but still underperforming the market, as insurers came under pressure after American International Group Inc

(AIG) said yesterday auditors found material weakness in how it reports the value of certain credit default swaps, raising concerns that it will report further losses.

Although traders have said that European insurers are relatively safe from the current crisis in the US which has engulfed AIG, the news also put pressure on Muenchener Rueckversicherungs AG, which was up 2.19 eur or 1.96 pct at 114.04.

Over on the MDAX, IKB Deutsche Industriebank rose 0.60 eur or 12.15 pct at 5.54, as traders said recent news indicates that the German government will probably bail out the troubled bank, perhaps by providing a capital injection of up to 500 mln eur.

At the other end of the index, AWD was up 0.01 eur or 0.03 pct. TecDAX-listed Q-Cells led its index higher, adding 7.46 eur or 13.56 pct at 62.46. At the other end, Versatel lost 0.51 eur or 2.67 pct at 18.60.

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Amsterdam shares close higher, as financials rally on Buffett plan 

The AEX closed up 16.15 points or 3.78 pct at 443.89, after opening at 431.51 and trading in the range 425.35-444.00. Government bonds traded lower, while the euro stood at 1.4520 usd compared with 1.4510 usd late yesterday.

Fortis closed the day 7.32 pct stronger at 14.08 eur, benefiting from optimism on both sides of the Atlantic over Warren Buffett's offer to provide extra guarantees on over 800 bln usd in municipal bonds backed by troubled US insurers.

Peer Aegon gained 5.53 pct to 9.54 eur, while ING closed the day 4.18 pct higher at 20.92 eur, off earlier lows of 18.77 eur, as the Dutch insurance group assuaged investor fears that it may have to write down as much as 8 bln eur in US real estate assets. An ING spokeswoman said the group is "perfectly aware" of its obligations to inform the market if there are "material deviations" to what it published in the third quarter and now.

Staffing group Randstad closed 6.53 pct up at 23.92 eur, gaining as bullish investors bet the wider economy will benefit from any easing on the credit markets. The Dutch Central Bureau of Statistics said today the number of job vacancies in the Netherlands, one of Randstad's main markets, remained at a record high in the fourth quarter of 2007.

Randstad is scheduled to post fourth-quarter figures on Thursday.

ArcelorMittal ended 6.45 pct higher at 49.17 eur, with the steel giant expected to publish a full-year net profit of around 10 bln usd tomorrow before the market opens. Analysts will be looking for reassurance on the company's ability to face up to an economic slowdown.

Royal Dutch Shell was 4.46 pct up at 24.13 eur, gaining from rising oil prices, as Venezuela threatened to stop oil exports to the US because of a dispute with Exxon Mobil Corp.

DSM finished 4.11 pct higher at 28.12 eur, ahead of fourth-quarter results due tomorrow, which are expected to show improving numbers, although the focus will be on the company's Vision 2010 innovation strategy, its planned divestments and any outlook it might give on 2008.

Wolters Kluwer finished 3.66 pct up at 18.67 eur, as CA Cheuvreux upgraded the stock to '2 Outperform' from '3 Underperform', saying the Dutch technical publisher is trading at a 10 pct discount to the sector.

ASMI led midcap gainers, closing 6.25 pct stronger at 13.59 eur, as the semiconductor equipment company announced that it plans further meetings about its future.

Unit 4 Agresso was 5.87 pct higher at the close, reaching 16.41 eur, as the software developer said it plans to transfer its loss-making French operations to a management buyout team.

ASML fell 0.76 pct to 16.92 eur, while KPN was 0.31 pct off at 12.86 eur.

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