UK/Euro Financial Market Daily Evening Briefing 16-01-2008

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London shares close lower, with miners weighing on global slowdown fears

By the close, the FTSE 100 was down 82.7 points at 5,942.9, having recovered from a low of 5,908.5, and off a high of 6,031.5, with the FTSE 250 index off 138.9 points at 9,626.9.

In the US, the Dow Jones Industrial Average was off 41 points at 12,460, with the S&P 500 index off 9.95 at 1,371, and Nasdaq composite index down 35.2 points at 2,382.39. Weighing on sentiment were disappointing earnings from Intel Corp, which issued a lacklustre forecast that raised concerns about demand for technology products.

Not all corporate news was downbeat, however. JP Morgan Chase & Co and Wells Fargo & Co offered some relief for investors concerned about the health of banks. Back in the UK, the miners were weighing heavily on the FTSE 100 at end of the session against a backdrop of weaker commodity prices as a result of global economic slowdown fears.

Antofagasta was the top faller, off 43 at 589-1/2, while Kazakhmys closed 74 lower at 1,193, Xstrata ended 191 weaker at 3,227, and Vedanta Resources closed 105 lighter at 1,885. Even an upbeat iron ore output update was not enough to lift shares in Rio Tinto down 331 at 4,665.

Rio Tinto said it has still not held takeover talks with BHP Billiton -- which closed 78 pence lower at 1,406 -- which made an unsolicited 3-for-1 offer approach in November, and had not engaged in talks with anybody, a spokeswoman for the company confirmed.

Rio Tinto has described BHP's proposal as undervaluing the company. Oil and gas stocks also moved sharply lower as crude prices fell below 90 usd after a rise in US supply stocks, with recession fears in the US also weighing on prices.

BP ended down 9 at 563-3/4, and Royal Dutch Shell finished down 52 at 1,986-1/2. A spate of stocks suffered on the back of broker downgrades, with London Stock Exchange closing down 97 at 1,614, after Sanford Bernstein initiated coverage with an 'underperform' rating and 1,600 target.

The broker said LSE's 90 pct plus exposure to equities, even after the Borsa Italiana acquisition, leaves it vulnerable to pricing pressures, volume growth and market share loss. Bear Stearns' downgrades affected insurers, with Aviva closing 13 weaker at 612-1/4, Prudential ending down 28 at 642-1/4, as the broker cut the groups to 'peer perform'.

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Elsewhere, Cable & Wireless suffered after Morgan Stanley downgraded its rating to 'equal-weight' from 'overweight', and its target to 190 pence from 212, with the shares off 5.9 pence to 164.5. In a note published this morning, Morgan Stanley said its rating cut comes on the back of changes in its Caribbean estimates due to weak results in Jamaica.

Shares in Vodafone ended the session down 1.4 pence at 180.3, with Lehman Brothers cutting its rating to 'equal-weight' from 'overweight', and following a Goldman Sachs review of the telecommunications sector, in which it removed the company from its 'Conviction Buy List', but kept a 'buy' rating on the stock with a 214 pence-a-share target.

Turning to the gainers, positive broker comment provided the impetus for shares in British Land, the top gainer at the close -- up 38-1/2 pence at 920-1/2, with JP Morgan saying in a European property review that the group was one of its top picks.

As part of the review the broker said it is time to think 'contrarian' and 'buy' certain stocks and said that British Land trades at a 44 pct discount to its Sep-NAV and has a 6 pct implied net yield.

JP Morgan also named midcap Segro as among its top picks, citing its defensive qualities, and lifting its target to 565 pence from 540. Its shares were among the top risers on the second line, finishing 27-3/4 pence ahead at 473-1/2, with peers Brixton, which closed 11-3/4 ahead at 305-3/4, and Great Portland Estates, which ended 16-1/4 pence firmer at 437, also among the top midcap risers.

A Goldman Sachs upgrade gave British Airways shares a lift, up 12 pence at 289-1/2, with the broker raising its rating to 'buy' from 'neutral'. Also helped by a Goldman Sachs upgrade was AstraZeneca, which finished 72 firmer at 2,299, after the broker lifted its recommendation on the drugs giant to 'buy' from 'neutral' on valuation grounds.

A broker upgrade also helped Diageo, which gained 20-1/2 at 1,018, as Lehman Brothers raised its recommendation on the group to 'overweight' from 'equal-weight'.

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Looking at the midcaps, Dimension Data Holdings closed lower following the release of a broker note by Goldman Sachs in which it downgraded the stock to 'sell' from 'neutral', with a 12-month price target of 53 pence.

The shares ended 7-1/2 lighter at 49. Northern Rock continued to suffer, ending down 1-1/4 at 68-1/2, as Prime Minister Gordon Brown said yesterday that the government was considering nationalising the group in an interview with TV broadcaster ITV.

Shares in Punch Taverns were hit, off 30-1/2 at 587-1/4, following the pub operator's latest trading update, with Evolution Securities cutting its rating to 'add' from 'buy', slashing its target to 600 pence from 1,300 and lowering its forecasts, while Landsbanki kept its 'hold' stance on the stock as it looks to reduce its rating.

Finally, United Business Media ended 27 pence weaker at 517-1/4, as JP Morgan downgraded the group to 'neutral' from 'overweight', with a reduced price target of 655 pence from 950.

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Paris shares close down, off lows, tracking Dow; Accor drops on Q4 sales

The CAC-40 index ended down 25.43 points or 0.48 pct at 5,225.39, off an intraday low of 5,177.68, while the SBF 120 closed 23.74 or 0.63 pct at 3,746.42. On the Matif, January CAC-40 futures were trading at 5,224.5, while the euro was quoted at 1.4639 usd versus 1.4835 usd late yesterday.

Dexia ended down 0.67 or 3.84 pct at 16.78, while Credit Agricole fell 0.14 or 0.64 pct at 21.66 and Societe Generale slid 0.31 or 0.33 pct at 94.93. BNP Paribas climbed 0.92 or 1.27 pct at 73.17, helped by a note by Deutsche Bank which maintained it as its top-pick among French banks.

The broker cut its price targets to 91 eur from 96.9 for BNP to reflect increasing bad debt charges and cost of equity, but the analysts said "we definitely think BNP deserves a premium, versus Societe Generale and versus the German banks".

Outside the CAC-40, electrical goods maker SEB SA was down 2.12 or 1.94 pct at 107.08, well off an initial slide as far as 102.50 after a solid set of fourth quarter sales figures.

"The figures were perfectly in line with consensus, and with our expectations, so we're completely take aback by today's fall," a local dealer said. Among other midcaps, Sperian Protection tumbled 3.01 or 4.32 pct at 66.65, after reporting a slowdown in organic growth in the fourth quarter.

The company also said the depreciation of the dollar had a 3.9 pct negative impact on sales, offsetting the benefits of acquisitions, and stoking fears about the group's US exposure.

Stallergenes was another heavy faller, down 1.87 or 4.90 pct at 36.33 after today's fourth quarter sales report, in which it said 2008 profit will be affected by increased R&D spending in the US.

Elsewhere, the bearish market mood saw industrial stocks take a battering, with Michelin falling 1.28 or 2.04 pct at 61.56, and Renault slumping 1.95 or 2.37 pct at 80.26. On the upside, Alcatel-Lucent closed up 0.06 or 1.35 pct at 4.52 after strong results from Sony Ericsson, the handset affiliate of its Swedish peer Ericsson.

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German shares close lower, tracking lower opening on Wall Street

The DAX was down 94.81 points or 1.25 pct at 7,471.57. The MDAX lost 127.12 points or 1.47 pct to 8,530.48, while the TecDAX was down 37.34 points or 4.41 pct at 810.02. DAX futures fell 117.00 points or 1.53 pct to 7,522.00, while bund futures were 0.32 points or 0.28 pct higher at 116.25. The euro was trading at 1.4644 usd, against 1.4797 in London afternoon trade.

Deutsche Boerse led blue chips lower, dropping 10.86 eur or 8.84 pct to 112.00 eur, while Deutsche Postbank declined 3.81 eur or 6.15 pct to 58.19.

Adidas fell 2.14 eur or 4.98 pct to 40.81 eur after Goldman Sachs cut its recommendation on the sportswear company to 'neutral' from 'sell', adding it to its 'conviction sell list'. The company's market value is too high, given the recent weakness in retail sales, the brokerage said.

TUI was down 0.60 eur or 3.83 pct to 15.07. Infineon dropped 0.25 eur or 3.74 pct at 6.44, after US peer Intel released weak fourth-quarter results. On the upside, Continental led large caps higher, rising 2.25 eur or 2.95 pct to 78.46.

Linde advanced 2.48 eur or 2.70 pct to 94.48 eur, following an upgrade to 'buy' from 'neutral' at UBS. The brokerage expects Linde's management to "deliver accelerating and defensive EBIT growth of 14 pct in 2008 and 11 pct in 2009 respectively, while growth for the sector and its global gases peers is decelerating".

Hypo Real Estate added 0.56 eur or 2.59 pct to 22.20 eur, recovering slightly from yesterday's 35 pct slump after the company slashed its 2007 dividend and said it will not meet its full-year target of a return on equity of 12 pct.

SAP ascended 0.58 eur or 1.77 pct to 33.44 as several brokerages confirmed their 'buy' rating on the software giant. Over on the MDAX, K&S dropped 18.36 eur or 10.33 pct at 159.36.

At the top, Pfleiderer jumped 1.91 eur or 16.10 pct to 13.77 eur, after the company said it has been approached by financial investors who are interested in a participation and said one of them is considering submitting a takeover bid.

Premiere also rose 0.25 eur or 1.77 pct to 14.35 in afternoon deals on a rumour that France's Vivendi has increased its stake in the German pay TV group to 14.8 pct and may be considering a takeover bid. On the TecDAX, Solarworld fell 4.05 eur or 11.52 pct to 31.10, whereas GPC Biotech gained 0.25 eur or 13.66 pct to 2.08 eur.

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Amsterdam shares close lower, ASML leads decliners on outlook worries

The AEX closed 7.93 points or 1.69 pct lower at 462.61, after opening at 466.69 and trading in the range 458.42-468.15. Government bonds traded higher while the euro stood at 1.4644 usd versus 1.4860 usd late yesterday.

ASML slumped 6.88 pct to 17.20 eur, as investors fretted about the company's scaled back 2008 outlook as it reported in-line fourth-quarter results and after Intel announced disappointing earnings and issued a lack-lustre forecast.

Steel giant ArcelorMittal fell 2.70 pct to 43.25 eur as it said it is to cut 595 jobs from a total of 1,000 at its site at Gandrange in eastern France. Among financials, Fortis was off 2.92 pct at 16.31 eur, after being cut to

'peer perform' at Bear Stearns, while Aegon was down 0.89 pct at 11.17 eur and ING closed 0.71 pct lower at 25.34 eur. DSM fell 2.24 pct to 28.75 eur. The company said earlier it has acquired US-based Soluol, a producer of high performance urethane resins, for an undisclosed sum.

On the midcap, Crucell fell 10.41 pct to 10.41 eur. The company said this afternoon that it refutes a recent claim by Germany's Cevec Pharmaceuticals GmbH that one of its PER.C6 drug patents was restricted by a December decision of the European Patent Office. The company also said it has not been visited by EU representatives as part of the antitrust investigation into the pharmaceutical industry.

Staffing company USG People was 5.80 pct lower at 14.93 eur after being cut to 'hold' from 'buy' at ABN Amro. Unilever led the handful of blue chip gainers, up 1.97 pct at 22.30 eur. Randstad added 0.78 pct to 27.21 eur as investors gained confidence from an ABN Amro upgrade and cautiously optimistic comments about the stock's valuation.

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