UK/Euro Financial Market Daily Evening Briefing 18-01-2008

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London shares close mixed, well off highs; Wall Street rally fades

At the close, the FTSE 100 was down 0.7 points at 5,901.7, having been as high as 6,030.9 and as low as 5,856.8, a range of 174.1 points. Over the week, the FTSE 100 was down 300.3 points, or 4.84 pct. It has now fallen for four straight days. The FTSE 250 rose 17.5 points today to close at 9,680.1. Volume was average, with 3.15 bln shares having changed hands in 956,027 deals.

Wall Street initially rebounded strongly after three days of decline, helped by General Electric reporting fourth-quarter earnings of 6.8 bln usd, matching the mean estimate of analysts surveyed by Thomson Financial. Revenue grew 18 pct to 48.59 bln usd, from 41.28 bln a year ago, topping analyst forecasts of 47.28 bln.

The market was also lifted by upbeat statements from other companies, including chip maker Advanced Micro Devices and IBM, which late yesterday provided more details following a preliminary earnings statement on Monday. The Dow Jones Industrial Average was up 180 points in early trade, but by the time the London markets were closing, the Dow was up just 19 points at 12,178.2. The S&P 500 was down 3.65 points at 1,329.6.

David Jones, chief market strategist at IG Index, said: "We had some good news today, but we're in a situation where people are still focusing on the bad news, like Merrill Lynch's results yesterday. I can see the 5,800 level being tested on the FTSE 100 next week."

After the UK market closed, disappointment over President Bush's economic stimulus plan pushed the Dow well into negative territory. Turning to the UK blue chips, miners were in demand on bullish sentiment on longstanding bid situations, as well as gold prices rebounding above 880 usd an ounce and copper also recovering.

Xstrata topped the leaderboard at the close, up 266 at 3,363 amid rumours that Brazil's Vale will soon go ahead with a bid. There was also talk that BHP Billiton could come in with a firm bid for its peer Rio Tinto in the next few days.

Rio Tinto shares were up 221 pence at 4,700 while BHP was 29 higher at 1,378. The chatter in Australia overnight was that BHP was looking to raise its adjusted equity ratio of 3.6 BHP shares for each Rio share, plus a cash component of roughly 760 pence per share.

Elsewhere in the sector, an upgrade to 'overweight' from 'neutral' by HSBC helped lift Kazakhmys 24 to 1,155. M&A chatter also helped lift shares in AstraZeneca, up 82 at 2,380, as the rumour GlaxoSmithKline is preparing a bid resurfaced, however several traders dismissed the talk as spurious.

And, Marks & Spencer, battered last week by its Christmas update, rose 15-1/4 to close at 414-1/2, as talk of stakebuilding by Philip Green emerged, although traders have suggested he has denied the rumour. Argos and Homebase parent Home Retail Group, which closed lower yesterday after its Christmas update, finished up 13 today at 279-1/4 pence.

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Meanwhile, the London Stock Exchange Group jumped 63 to 1,650, reversing recent weakness and helped by the British Prime Minister Gordon Brown who is pressing the Chinese government to lift restrictions on Chinese companies looking to raise capital on the LSE.

The day's volatility was perhaps best summed up by Carphone Warehouse which reversed losses from midmorning when it was one of the biggest fallers, to trade higher midafternoon, only to close 2-3/4 lower at 302.

The group's trading update said that profitability is still on track despite lower pre-pay, though analysts said the figures were below forecasts. On the downside, ICAP dropped 34 to 616-1/2 on worries a protracted US recession would hit trading volumes.

Insurers were also hit after a report indicating that Aegon unit Scottish Equitable has frozen withdrawals from its property fund sparked investor anxiety in Amsterdam. Prudential closed 37 lower at 596-1/2. Aviva dropped 25-1/2 to 579 and Standard Life closed 14-1/4 lower at 211-3/4, making it the biggest FTSE 100 faller.

And JP Morgan put the boot into the banking sector after reiterating its 'underweight' rating for the sector and cutting EPS by 9 pct for 2008 and 12 pct in 2009. Barclays fell back 16 at 450. However, midcap banking stock Northern Rock bucked the trend, closing 1-1/2 higher at 64-1/2 as RAB Capital downplayed the potential impact on its funds of a nationalisation -- and hinted at future acquisitions.

Elsewhere in the midcaps, Aveva a major riser, up 90 at 906, after the group said it sees its full-year results significantly ahead of its expectations, prompting Landsbanki to up its forecasts for the group while keeping 'buy'.

And broker comment lifted Shanks 8-1/4 to 236-3/4 as Lehman Brothers initiated coverage in the waste disposal group with an 'overweight' rating. Budget airline easyJet was up 3-1/2 at 433-3/4 after the Office of Fair Trading said it has cleared the company's acquisition of GB Airways Ltd.

New Star Asset Management remained the standout faller at the close, down 45-3/4 at 101-1/4 after the fund manager said the credit crunch will reduce its profits this year, and warned that its 2007 dividend will be much lower than expected. In reaction, Citigroup downgraded its stance to 'sell' from 'hold' with a reduced price target of 140, from 200.

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Meanwhile, BlueBay Asset Management fell 12-1/4 to a record low of 255, following its trading statement this morning, while Cazenove repeated its 'in-line' stance in reaction.

The gloomy news from midcap fund managers sent FTSE 100 rivals lower. Schroders was down 60 at 1,019. Lastly, Taylor Nelson Sofres fell 2-3/4 to close at 173 after Citigroup cut the group to 'sell'.

UK Diary of Event:
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UK Small Cap Report:
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Milan shares close lower, led by insurers, Mediaset

MILAN - Share prices closed lower on renewed worries over the slowdown in the world economy, led by insurers, which have previously resisted the equity downturn, and by Mediaset on broker downgrades.

The Mibtel index down 1.14 pct to 26,910, and the S&P/Mib was off 1.34 pct to 35,753. Turnover was an estimated 6.713 bln eur. Brokers said this week has seen the market in a clearly more negative direction, with investors no longing seeing prices in a trading range.

This morning's monthly expiry of options and futures gave no clear indication on when the falls might end, given low volumes, they said. In particular, small and medium-sized capitalisations are seeing hefty losses, they said.

One broker said he sees possible delistings of companies. This will indicate when the market has reached the bottom, in the same way as heavily over-subscribed IPOs indicate when they have reached a peak, he said. This broker declined to identify possible delisting targets, saying owners would first have to raise finance for this.

Many companies and their directors have bought their own company's shares because of undervaluations compared to fundamentals. Indesit, speculated as a possible delister, was up 0.60 pct to 8.355, while Pirelli RE lost 1.94 pct to 24.26. Yesterday, parent Pirelli reiterated no plans to delist.

Pirelli was up 0.50 pct to 0.6795. Yesterday it launched a tyre product. Benetton rose 2.69 pct to 8.89. The company reiterated full year 2007 forecasts as its chairman Luciano Benetton bought the stock.

Insurers fell in line with the sector. Generali slipped below the key 30 eur level, down 3.22 pct to 29.49. Fondiaria-SAI was off 3.41 pct to 25.77. Among banks, Unicredit lost 3.73 pct to 5.32, falling sharply in late trading. BMPS, off 4.01 pct to 3.235, was another late loser. Intesa Sanpaolo lost 1.65 pct to 4.95.

Mediaset fell 3.08 pct to 6.13, depressed by a downgrade to 'sell' by Citigroup, from 'hold', with a 5.8 eur target. One broker said he was not convinced by Mediaset vice-chairman Pier Silvio Berlusconi's comments on Italy Jan/Feb advertising sales going "very well". The broker said this probably meant they were up 1 pct.

Seat PG lost 2.06 pct to 0.2258. L'Espresso gained 2.42 pct to 2.6075. On the positive side, Luxottica rose 4.98 pct to 17.93. Some brokers see scope for luxury stocks to rise. Bulgari was up 0.56 pct to 7.85. Telecom Italia rose 2.64 pct to 2.135 on strong data from its Brazil operations. Autogrill gained 1.94 pct to 10.96 on its defensive qualities and speculation on acquisitions.

Atlantia rose 1.16 pct to 24.36. Enel was up 1.20 pct 7.995. One broker said any sharp oil price fall will hit energy stocks. Eni fell 0.51 pct to 23.20.

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German shares close lower as DAX erases afternoon gains

FRANKFURT - German shares closed lower as the DAX tracked losses on Wall Street, failing to hang on to afternoon gains in a volatile trading session.

Optimists are cancelled out by a roughly equal number of pessimists in the market, said Stefan Soellner, a trader at Postbank, pointing to the ongoing debate about the risk of a recession in the US and the possibility of the Federal Reserve cutting interest rates in response.

At the close, the DAX was down 99.36 points or 1.34 pct at 7,314.17, having traded in the 7,287.29 and 7,501.04 band. The MDAX lost 25.61 points or 0.30 pct to 8,429.48, while the TecDAX declined 23.44 points or 2.87 pct to 792.34.

DAX futures slid 31.50 points or 0.43 pct to 7,365.50, while bund futures were 0.17 points or 0.15 pct lower at 116.36. The euro was trading at 1.46242 usd, compared with 1.46510 usd in afternoon trade.

Leading the list of declining large caps, Allianz lost 8.15 eur or 5.77 pct to 133.19 eur. US bond insurer Ambac has been placed on review for a possible rating downgrade. The Moody's warning on Ambac weighed heavily on the European insurance sector.

TUI retreated 0.62 eur or 4.13 pct to 14.40 eur, continuing yesterday's trend. Metro led blue chips higher, adding 1.48 eur or 2.81 pct to 54.13 eur, after the company yesterday said it sold its 245 Extra supermarkets to Rewe Group. With the sale, Metro last night said it will reduce its balance sheet net debt by about 350 mln eur.

Industry sources told Thomson Financial News partner dpa-AFX Rewe paid about 500 mln eur for the Extra outlets. "The deal does not come as a surprise and was expected by us, but the conditions are better than expected," said UniCredit analyst Volker Bosse in a note.

ThyssenKrupp increased 0.64 eur or 1.82 pct to 35.80 eur, after the company posted better-than-expected key figures for its first fiscal quarter.

Germany's largest steelmaker earlier said its first-quarter pretax profit excluding one-offs declined to about 700 mln eur from last year's 1.062 bln eur. That still beat the 673 mln eur average analyst forecast compiled by Thomson Financial News partner dpa-AFX.

Deutsche Boerse jumped 1.78 eur or 1.56 pct to 115.65 eur, after Credit Suisse added the exchange operator to its Focus list yesterday. "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.

Over on the MDAX, Arques Industries fell 2.66 eur or 15.43 pct to 14.58 eur, after the company said its chief executive Martin Vorderwuelbecke will leave the company after less than a year on the job.

Pfleiderer, led MDAX gainers and was up 1.85 eur or 14.07 pct at 15.00 eur, on reports that US-based private equity company One Equity Partners is seeking to acquire a majority stake in the company and has already started buying shares.

TecDAX-listed Solon retreated 6.53 eur or 11.67 pct to 49.42 eur, whereas GPC Biotech rose 0.11 eur or 5.61 pct to 2.07 eur.

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Amsterdam shares close sharply down led by financials as Wall St optimism fails

AMSTERDAM - Shares closed sharply lower, led by financials as Wall Street's opening optimism failed, market sources said. The AEX closed down at its low, down 10.17 points or 2.21 pct to 450.08 after opening at 456.36 and reaching a midafternoon high of 463.70. Government bonds traded higher, while the euro stood at 1.4636 usd versus 1.4684 usd late yesterday.

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