UK/Euro Financial Market Daily Evening Briefing 12-03-2008

London shares close up, off highs after unexciting Budget; Wall St gains

The FTSE 100 index ended Wednesday's session 86.00 points ahead at 5776.4, having drifted back from a midmorning peak of 5,812.7, while the broader FTSE indices all closed up, with the FTSE 250 index 216.6 points higher at 9,989.4. Volume was solid, with 2.513 bln shares changing hands in 755,647 deals.

On Wall Street, indices made further headway in choppy trade following yesterday's 416-point surge, with the Dow Jones Industrial Average up 80.53 points at 12,237.40 at the UK close. The Nasdaq Composite added 15.71 to 2,271.47 and the S&P 500 was 4.30 higher at 1,324.95. In London, meanwhile, the absence of any surprises in the UK Budget failed to offer any fresh direction for UK shares in afternoon trade.

News that chancellor Alistair Darling wants UK energy suppliers to spend 150 mln stg on their social tariffs to help vulnerable customers, up from the current level of 50 mln stg, was much as expected, although the market's knee-jerk reactions saw National Grid slip down 5 at 710-1/2, Scottish & Southern Energy fall 5 pence to 1,420 and International Power 1-1/2 lower at 379-3/4.

Meanwhile, significant hikes to the duty on alcoholic drinks and on tobacco was well forecast, as was a six month delay to the fuel duty hike. Any disappointment from news that there would be no rise in the starting point for homebuyers stamp duty, as some observers had predicted, was tempered by the announcement that no stamp duty will be charged on shared ownership homes at up to 80 pct of equity.

Shares in Kazakhmys leapt 16 pct higher, up 245 pence to 1,780 after Eurasian Natural Resources Co revealed it has had informal merger talks with the blue-chip group about a possible merger. Kazakhmys currently holds a 14.6 pct stake in ENRC after acquiring an 18.8 pct holding in the Kazakh mining group for 806.5 mln usd in October last year ahead of ENRC's flotation in December.

An analyst who wished to remain anonymous said that while the move is interesting, there is no obvious read-across for other copper miners -- although the stocks were all higher -- with the main driver looking to be a Kazak-focused strategy.

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However, the analyst pointed out that further sector consolidation moves understandably increase valuations across the sector. As a result, shares in Chilean copper miner Antofagasta gained 36 pence at 760, while India-based Vedanta Resources added 94 at 2,226.

Miners apart, Standard Life put in a strong performance, rising 28.5 at 247, after the UK's fifth-biggest insurer reported a better-than-expected 43 pct increase in its full-year profit, helped by cost controls and stronger sales of high-margin products.

Panmure Gordon reiterated its 'buy' rating in reaction to what it called a 'sparkling set of figures'. Investors in peers Old Mutual and Legal & General breathed a sigh of relief, sending the stocks up 4.9 at 114.6 and 4.1 at 126.5 respectively.

Elsewhere in the sector, Friends Provident added 3.9 at 127.9 as renewed hopes of a bid from investment vehicle JC Flowers helped offset the UK life insurer's disappointing full-year results yesterday.

Panmure Gordon raised its rating on the company to 'hold' from 'sell' today, saying it thinks either two significant parts of the business will be sold or the group will be acquired.

Banks continued to rally as investors cheered the Federal Reserve's decision to offer up to 200 bln usd in loans in a bid to ease the liquidity crisis in the credit markets.

Barclays climbed 23-1/2 at 460-1/2, Royal Bank of Scotland gained 14 at 358-3/4, and Lloyds TSB was up 10-3/4 at 444. Returning to commodities, Tullow Oil closed 16 higher at 646 after delivering what KBC Peel Hunt described as an 'all-round positive message', despite lower-than-expected full-year profits.

The oil exploration group was further bolstered by the ongoing rise in oil prices, with crude oil at almost 109 usd a barrel on Nymex, which also helped BP take on 7-1/2 at 545-1/2 and Royal Dutch Shell rise 26 at 1,708. On the downside, utility plays apart, ex-dividend stocks including HBOS took about 8.1 points off the Footsie. HBOS was down 11-1/2 at 578.

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However the main casualty was Experian Group, 12-1/4 pence weaker at 400 after Credit Suisse issued a note reiterating its 'underperform' stance and saying it believes 'deteriorating fundamentals will come to light' for the credit checking firm.

On the second tier, Laird Group rose 30 to 505-1/2 after the company unveiled what KBC Peel Hunt called a "strong" set of full-year results this morning, and said it is confident of making further good progress this year, with KBC keeping its 'add' rating in reaction.

Savills was also buoyant after releasing results, up 11-3/4 at 344-3/4, with Numis noting the results came in ahead of its forecasts, as expected, prompting the broker to keep its 'add' recommendation.

Shares in Keller took on 31 at 71-1/2 as Landsbanki initiated coverage as 'buy' with an 885 pence target, pointing out that even after a post-results bounce, Keller's share price, in its view, significantly under-values the quality of the company's operations and its potential to consolidate a fragmented global market.

Finally, among mid-cap fallers, Rank Group stood out at the top of the casualty list, down 5-1/2 pence at 91-1/2 as the Bingo industry responded with

"disbelief" to Alistair Darling's decision not to remove VAT from bingo charges, but rather to increase the tax burden for bingo through higher rates of amusement machine licence duty (AMLD). Bingo Association chief executive Paul Talboys described the decision as a "slap in the face for bingo players across the country".

UK Diary of Event:
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UK Small Cap Report:
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Paris shares close higher as rally continues after Fed liquidity boost 

The CAC-40 index finished up 69.41 points or 1.50 pct at 4,697.10. Among CAC-40 stocks, 31 closed higher and 9 closed lower. On the Matif, March CAC-40 futures were trading at 4,688.5.

On the broader indices, the SBF-80 index closed up 76.36 or 1.43 pct at 5,398.83 and the SBF-120 ended up 50.02 or 1.49 pct at 3,404.22. The euro was quoted at 1.5498 usd, just short of a fresh all-time high of 1.5513 this afternoon.

Franco-Belgian bank Dexia headed the CAC-40, closing up 1.08 eur or 6.89 pct at 16.76, followed by Societe Generale, up 4.17 or 6.23 pct at 71.11.

Dexia was boosted by Moody's Investors Service move to affirm the 'Aaa' financial strength ratings of the bank's bond insurance unit FSA, to reflect its strong capital position, while Societe Generale was partly lifted by fresh M&A talk after French daily La Tribune claimed BNP Paribas could announce the terms of a takeover offer before SocGen's AGM on May 27.

Other financials made solid gains, with Credit Agricole adding 0.78 or 4.40 pct at 18.52, insurer Axa rising 0.78 or 3.75 pct at 21.59, and BNP Paribas up 1.32 or 2.27 pct at 59.54. Air France-KLM was another major riser, rebounding from a heavy fall in recent sessions to climb 0.77 or 4.93 pct to 16.38, helped by an easing in oil prices in New York.

The airline also announced a 4.6 pct increase in capacity for its summer schedule, which will include new routes between London and the US through a joint venture with Delta Air Lines. Food group Danone gained 2.04 or 3.92 pct to 54.10, lifted by an upgrade to 'buy' from 'hold' at Deutsche Bank.

Among the rare bluechip fallers, some defensive stocks saw profit-taking, with France Telecom down 0.09 or 0.41 pct at 21.65 and Sanofi-Aventis 0.12 or 0.25 pct lower at 47.61. EDF posted the biggest fall on the CAC-40, shedding 0.45 or 0.74 pct to 60.02.

Outside the CAC-40, JCDecaux plunged 2.05 or 10.12 pct to 18.20 after the outdoor advertising group unveiled disappointing 2007 results and cut its sales growth guidance to 6 pct for 2008. Societe Generale analysts said the market may have mixed feelings about this growth forecast, particularly when the reported growth rate of 8.8 pct for 2007 "was judged by some investors as disappointing."

Fimalac, owner of Fitch credit rating agency, gave up 2.80 or 7.15 pct to 36.38, after US rival Moody's cut its 2008 profit outlook. Analysts at Exane BNP Paribas downgraded their 2008 sales estimates for Fimalac and Fitch as well as lowering their Fimalac EPS forecasts for 2008 and 2009.

IT services group Alten fell 0.59 or 3.03 pct to 18.90 after publishing an unexpected drop in 2007 net profit. In contrast, call centre operator Teleperformance jumped 1.40 or 7.01 pct to 21.38 after reporting a 39 pct surge in 2007 net profit, and a "favourable" start to 2008.

In a note to clients, Exane BNP Paribas said the stock was a firm buy because of its "growth story", scope for guidance upgrades, potential for a share buyback and its attractive valuation. Auto parts manufacturer Valeo surged 1.24 or 5.33 pct to 24.52, helped by an upgrade to 'buy' from 'hold' at SG Securities.

The French broker said Valeo's situation was likely to improve, with organic growth, less pressure from raw materials and lower expenses. Marine services group Bourbon added 1.47 or 4.01 pct to 38.11 after publishing strong 2007 results and saying market prospects remain favourable.

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German shares close higher, led by financial stocks

The DAX closed 74.80 points, or 1.15 pct, higher at 6,599.37.35, having traded between a low of 6,569.36 and a high of 6,666.58 in today's session. The MDAX added 119.69 points, or 1.38 pct, to 8,806.73, while the TecDAX gained 4.59 points, or 0.61 pct, to 751.34.

DAX futures were down 30.00 points, or 0.45 pct, at 6,608.00, while bund futures added 0.25 points, or 0.21 pct, to 117.64. The euro was trading at 1.5495 usd, compared with 1.5450 usd this afternoon.

Deutsche Postbank trader Stefan Soellner said "the relief caused by the US Fed's action yesterday is continuing to bolster the market", he questioned whether the move was a temporary stop-gap or a long-term answer. "The problems in the financial sector really can't be fixed with 200 bln in extra liquidity and an interest rate decrease will probably not be enough either," he said.

Leading blue chips higher, Commerzbank added 1.10 eur or 6.00 pct at 19.44. Deutsche Bank gained 2.29 eur or 3.22 pct to 73.35, while Postbank rose 1.47 eur or 2.43 pct to 62.01.

Insurance giant Allianz, which owns Dresdner Bank, ascended 3.39 eur or 3.06 pct to 114.20. Deutsche Lufthansa added 0.70 eur or 4.66 pct at 15.72 as dealers and analysts said the airline's newly announced 2008 targets are optimistic and a positive surprise.

Germany's flag carrier said it sees full-year operating profit and sales advancing this year and next year from 2007 on unfettered demand for air travel.

Deutsche Boerse rose 3.06 eur or 2.98 pct to 105.70, as strong market advances yesterday and today are expected to boost turnover at the German stock market operator. Bucking today's positive trend, Fresenius Medical Care eased 0.59 eur or 1.79 pct to 32.46, while TUI slid 0.13 eur or 0.78 pct at 16.47.

Over on the MDAX, Wincor Nixdorf rose 2.69 eur or 5.77 pct to 49.28, while IKB Deutsche Industriebank slid 0.68 eur or 11.58 pct to 5.19. TecDAX-listed Singulus gained 0.61 eur or 6.79 pct to 9.60. Meanwhile, Adva fell 0.08 eur or 4.55 pct to 1.68.

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Amsterdam shares close higher as financials continue to gain

The AEX closed up 6.17 points or 1.42 pct at 439.81, after opening at 440.84, and trading in the range 437.40-442.82. Government bonds traded broadly lower, while the euro stood at 1.5499 usd, versus 1.5334 usd late yesterday.

ING led blue chip gainers, up 4.12 pct at 22.25 eur, while Fortis put on 3.28 pct to 20.16 eur and Aegon closed 1.63 pct higher at 9.36 eur. All three continued to benefit from yesterday's move by central banks to pump liquidity into the system in an attempt to help ease the credit crisis. ING said today the worsening economic conditions stemming from the global credit crunch have forced it to freeze two investment funds in New Zealand that invest largely in CDOs and CLOs.

Meanwhile, a Belgian newspaper reported that Fortis is in talks to boost its capital with a 2.0 bln eur investment from Chinese insurer Ping An. Aegon was upped to 'add' from 'hold' at Petercam, which said the issue is trading close to its net asset value level after being unfairly hit in recent months.

SBM Offshore put on 3.28 pct to 20.16 eur as the market responded positively to its in-line full-year results, which came out after the market's close yesterday. Shell was 0.98 pct up at 22.78 eur, aided by rising oil prices. Philips was 0.43 pct stronger at 25.64 eur as the company declined to comment on reports that it will sell 1.1 bln usd in shares of LG Display, formerly known as LG Philips LCD.

Ordina led midcap gainers, putting on 3.74 pct to 9.98 eur, while Imtech added 2.96 pct to 16.37 eur. TKH put on 1.67 pct to 15.21 eur after the Dutch cable and tyre company reported better-than-expected results over 2007. On the midcap Crucell dropped 0.43 pct to 9.16 eur.

The company announced plans to cut costs by 15 pct as it also reiterated that it expects sales in 2008 to grow 20 pct, driven by its Quinvaxem vaccine, which it expects will grow at a faster pace than the business as a whole. Tele Atlas led blue chips down, off 2.13 pct at 26.64 eur.

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