UK/Euro Financial Market Daily Evening Briefing 17-01-2008

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London shares close lower as mining, oil stocks weigh; NY lower

At the close, the FTSE 100 index was down 40.5 at 5,902.4, off an earlier high of 6,028.4, although the FTSE 250 index was up 35.7 at 9,662.6. Volume was strong with 3.244 bln shares changing hands in 1,101,211 deals.

In the US, Wall Street gave up mild gains and turned lower after Federal Reserve Chairman Ben Bernanke said the risks of an economic downturn are more pronounced, and that the housing sector will be a drag on the economy for much of this year.

While the regional report of manufacturing activity in the Philadelphia area was a reading of minus 20.9, showing the sector is contracting and extending fears over the state of the economy.

By the London close, the Dow Jones industrial average was down 101.6 points to 12,364.6, while the Standard & Poor's 500 index lost 15.00 to 1,358.2 and the Nasdaq composite index fell 6.81 to 2,387.78.

Back in London, mining stocks fell back on profit-taking and vague consolidation chatter. Earlier Anglo American said it is in exclusive talks with MMX Mineracao e Metalicos SA (MMX) to take control of the Minas-Rio and Amapa iron ore projects in Brazil for about 5.5 bln usd.

Anglo American was off 110 at 2,603, Kazakhmys lost 62 at 1,131, BHP Billiton was down 57 at 1,349, Vedanta Resources was down 125 at 1,760 and Lonmin fell back 158 at 3,204.

Meanwhile, oil stocks weighed on the index as prices hit a day low of 90.26 usd after Ben Bernanke's comments. BP lost 10-1/2 at 553-1/2, Royal Dutch Shell was down 36 at 1,913 and Tullow oil fell 6 at 541. Away from commodities, brewing giant SABMiller ended 57 pence lower at 1,187 after third-quarter organic growth slowed to 4 pct which Merrill Lynch Lynch said confirmed the slowdown in its top-line momentum.

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Also under the cosh was LSE, down 27 at 1,587 following yesterday's bearish note from Sanford Bernstein who warned the exchange could miss targets this year and next.

On the upside, Scottish & Newcastle added 39 at 765 after it said it has entered into discussions with Carlsberg A/S and Heineken about a possible offer from the pair at 800 pence per share.

Elsewhere, Associated British Foods was the top riser, up 63 pence at 838 pence after announcing that Christmas trading at the group's budget fashion retailer, Primark, was ahead of its expectations although it reiterated its warning that reforms of the EU sugar regime will have a "large negative effect" on profits in the current year.

Dresdner Kleinwort upgraded the stock to 'add' from 'hold' and maintained its target at 850 pence, while Panmure Gordon has a 'buy' recommendation on the group.

Property stocks got a lift after Morgan Stanley recommended investors switch from continental peers into the UK arena while an upbeat trading statement from Barratt Developments also boosted housebuilders. Morgan Stanley upgraded British Land to 'overweight' from 'underweight' along with its midcap peers Brixton and Segro.

Morgan Stanley said it expects a short, sharp, counter-trend rally in UK property shares in first-half 2008 as it sees the Bank of England forced to cut UK base rates by around 100 basis points in an attempt to avert a recession.

British Land was up 47-1/2 at 968, Land Securities gained 30 at 1,555 and Hammerson was 21 higher at 1,044, while in the midcaps Great Portland Estates was up 28 at 465, Segro was 44 firmer at 517-1/2 and Barratt Developments was 36-1/4 higher at 399 after its strong H1 trading update which Panmure Gordon described as more positive in tone than its competitors.

Elsewhere, shares in pub operator Enterprise Inns were up 12-3/4 pence at 416 after the company released an in-line trading update, with Deutsche Bank reiterating its 'buy' stance. A broker upgrade helped shares in Rexam gain 10-1/2 at 406-1/2 as UBS raised its stance on the group to 'buy' from 'neutral'.

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On the second line, Kesa Electricals was 17-1/4 firmer at 201 as it said like-for-like sales rose between November and January, while total group revenue also grew, prompting Merrill Lynch to repeat its 'buy' rating on the stock.

Elsewhere, HMV Group gained 4 at 105 after it said it expects its full-year pretax profit towards the upper end of the current market expectations. Sector peer Game Group added 11 at 195-1/2 on a read-across from the results.

Turning to the downside, Hikma Pharmaceutical was down 5-1/2 at 493 as it announced it plans to place 17 mln shares to reduce acquisition debts.

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Paris shares close lower after Bernanke comments drag Wall Street down

PARIS - Share prices closed lower after comments from US Federal Reserve chairman Ben Bernanke on the risks of an economic downturn dragged Wall Street lower.

The CAC-40 index ended 68.30 points or 1.31 pct lower at 5,157.09, while the SBF-120 closed down 45.65 or 1.22 pct at 3,700.77 and the SBF-80 closed down 33.25 or 0.60 pct at 5,490.90.

On the Matif, January CAC-40 futures were trading at 5,157.50, while the euro was quoted at 1.4682 usd versus 1.4639 usd late yesterday.

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German shares close lower on Bernanke speech, 2008 outlook 'worsened'

The DAX was down 58.04 points or 0.78 pct at 7,413.53. The MDAX lost 75.39 points or 0.88 pct to 8,455.09, while the TecDAX was up 5.76 points or 0.71 pct at 815.78. DAX futures fell 57.00 points or 0.76 pct to 7,471.00, while bund futures were 0.04 points or 0.03 pct higher at 116.19.

The euro was trading at 1.4677 usd, against 1.4670 in London afternoon trade. Leading blue chips lower, BMW dropped 1.31 eur, or 3.27 pct, to 38.70, after the European automobile association ACEA said the company's new car registrations for the EU member states along with Iceland, Norway and Switzerland fell 2.6 pct in December year-on-year.

Peer Daimler dropped 2.01 eur, or 3.55 pct, to 54.59, after Sanford Bernstein cut its stance on shares in Daimler to 'market-perform' from 'outperform' and lowered the target to 60 eur from 90 eur.

In a note to clients, the broker said it believes Mercedes earnings would be resilient to a downturn in the economy, but questioned whether Eastern European truck sales can offset a weakness in Western European and North America.

Deutsche Postbank fell 1.67 eur or 2.87 pct to 56.52, while Deutsche Post retreated 0.13 eur or 0.58 pct to 22.24. Linde shed 2.66 eur or 2.82 pct at 91.82, reversing yesterday's gains.

On the upside, Infineon added 0.33 eur or 5.12 pct to 6.77, rebounding from yesterday's losses, as chip makers rose on hopes that weak memory chip prices would force smaller chip makers to cut their output to stem losses, leading to a faster-than-expected price stabilization.

Hypo Real Estate recovered for the second consecutive day from earlier losses this week, increasing 0.07 eur, or 0.32 pct, to 22.27. On Tuesday, the company had posted preliminary full-year figures below expectations and said it no longer expects to meet its target of a 12 pct after-tax return on equity for 2007. As a result, shares in the company had dropped 35 pct.

Deutsche Boerse gained 1.87 eur or 1.67 pct to 113.87, after Credit Suisse added the exchange operator to its Focus list. "We believe that [the] company is the most attractive way for investors to gain exposure to capital markets," said Credit Suisse, in a note to clients where it also reiterated its 'outperform' rating on the company.

EON rose 2.47 eur or 1.73 pct to 145.22, after the company said it bought UK-based heating services company CHN Group in a "multi-million pound" deal.

Thyssenkrupp advanced 0.32 eur or 0.92 pct to 35.16. The company is expected to release key figures for the first quarter at tomorrow's annual general meeting.

Over on the MDAX, Heidelberger Druckmaschinen declined 1.48 eur or 8.05 pct to 16.91 as the company is seeing pricing pressure in the US as a result of the US dollar's weakness against the euro, chief executive Bernhard Schreier told Financial Times Deutschland in an interview.

At the other end, Suedzucker advanced 0.54 eur or 4.01 pct to 14.00. TecDAX-listed Nordex jumped 2.05 eur or 8.67 pct to 25.70, while GPC Biotech fell 0.12 eur or 5.77 pct to 1.96 at the other end of the index.

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Amsterdam shares close lower on economic worries; Heineken outperforms

The AEX closed 2.36 points or 0.51 pct lower at 460.25, after opening at 465.98 and trading in the range 459.59-469.22. Government bonds traded higher while the euro stood at 1.4684 usd versus 1.4644 usd late yesterday. Corporate Express led decliners, down 1.92 pct at 4.07 eur.

Financials were also among the chief decliners, led down by ING which shed 1.89 pct at 24.86 eur amid concern over its exposure to ALT-A mortgages in the US following Merrill Lynch's write-offs, trading sources said.

Peers Aegon and Fortis also traded lower, losing 1.79 pct at 10.97 eur and 1.77 pct at 16.02 eur respectively. TomTom shed 1.63 pct at 36.81. Heavyweight oil and mining stocks also traded lower, as Royal Dutch Shell lost 1.57 pct at 26.20 and ArcelorMittal shed 1.45 pct at 42.62.

On the midcap, dredging stock Boskalis Westminster lost 3.62 pct at 34.86, while construction stock BAM fell 2.98 pct at 12.01 eur. The company said it won a 60 mln eur contract to build a multi-functional centre in Lichfield, UK.

Staffing stock USG People lost 2.88 pct at 14.50. Retailer Ahold proved a defensive stock on the AEX as it gained 4.35 pct vat 8.14 eur to lead blue chip gainers after an upgrade to 'hold' from 'sell' at Deutsche Bank.

ASML rose 3.48 pct at 17.80 eur after sharp losses yesterday as it issued a cautious outlook and after Intel's results disappointed, market sources said. Midcap peer ASMI gained 3.34 pct at 13.29.

Brewer Heineken added 1.75 pct at 40 eur as investors welcomed news that consortium partner Carlsberg will entirely fund the 20 pence increase in their takeover bid for Scottish & Newcastle, trading sources said.

Midcap health food stock Wessanen lifted 5.80 pct at 9.66. Vopak gained 3.99 pct at 32.02 and Oce gained 3.96 pct at 12.32 as it was upgraded to 'buy' from 'hold' at Theodoor Gilissen. Local issue Kardan rose 1.25 pct at 9.66 eur amid news it will develop its sixth real estate project in China after winning winning a tender to acquire 104,000 square metres of land for 18.4 mln eur.

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