UK/Euro Financial Market Daily Evening Briefing 18-12-2007

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London shares close mixed; US rally fades; Cadbury gains on stakebuilding

At the close, the FTSE 100 index was up 1.5 points at 6,279.3, but had been as high as 6,344.3. The FTSE 250 index rose 46.8 points today to close at 10,187.2. Volume was moderate, with 2.24 bln shares having changed hands in 711,909 deals.

Wall Street got off to a strong start, recovering some ground following two days of heavy losses, but then fell back. Investment banking giant Goldman Sachs Group boosted sentiment by reporting fiscal fourth-quarter earnings of 3.22 bln usd, ahead of forecasts.

In addition, Goldman said its board has approved the buyback of an additional 60 mln shares. As the London markets were closing, earlier gains in US shares had been almost wiped out. The Dow Jones Industrial Average was up just 8 points at 13,175. The S&P 500 was up 3.53 points at 1,449.43, while the Nasdaq Composite was up 0.32 at 2,574.78.

On the downside, the US Commerce Department said that housing starts and building permits fell, bolstering investors' belief that the economy will continue to feel the housing market's drag in the new year. Housing starts fell 3.7 pct to the lowest rate in more than 16 years, while building permits fell 1.5 pct to the lowest rate in more than 14 years.

Back in the UK, hopes of more interest rate cuts were higher after the CPI index for November showed prices were up 2.1 pct on a year earlier, compared with forecasts of 2.2 pct.

And the Bank of England governor Mervyn King said today that the current liquidity problem facing the financial sector looks set to continue but that he expects some semblance of normality to return thereafter.

Meanwhile, investors on both sides of the Atlantic grew more optimistic that the decision by central banks in the US, Europe and UK to lend billions of dollars in multi-week loans will help boost demand in the struggling areas of the credit markets.

After announcing on Monday that it would supply euro-zone institutions unlimited two-week funds at a fixed rate, the European Central Bank said today that it awarded a higher-than-estimated 348.6 bln eur in a 16-day tender. Richard Hunter, head of UK equities at Hargreaves Landsdown, said: "It's a feature of the market recently that the UK has followed the US down quickly when there's been bad news, but it's been rather more tentative on the upside.

He added: "We still don't know what the extent of the fallout of the credit crunch is. It would be a major catalyst for the market if we knew that, and it would help boost M&A activity." Turning to UK equities, retail stocks, battered yesterday as analysts forecast a poor Christmas and heavy price discounting to shift unwanted stock, enjoyed a bounce.

Midcap Debenhams closed 6-1/4 pence higher at 81-3/4 after Milestone Resources, the investment vehicle of Micky Jagtiani, chief executive of Dubai-based retailer Landmark Group, declared a 7.4 pct holding. And DSG International rose 0.7 to close at 100.7, while Argos owner Home Retail Group edged up 2-3/4 to close at 313-3/4. Next took on 15 to 1,617. In all cases, the closing gains were not as impressive as those in mid-session.

Mining stocks rose, with gold and platinum prices rising. Anglo American rose 30 to 2,984; Rio Tinto rose 46 at 5,119, and Lonmin was up 40 at 3,008. Kazakhmys was the sector's best performer, up 24 at 1,274.

Cadbury Schweppes rose 15 to close at 623 after Trian Fund Management said it had increased its investment stake to 4.5 pct from 3.5 pct.

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The investment firm said it believed Cadbury shares were under-valued, and that the company's target value could be as high as 970 pence a share, or about 60 pct above the current share price. Train also said it had sent a letter to Cadbury's board that calls for it to increase shareholder value by setting near-term margin targets, and long-term margin goals for the company's confectionary business.

Among financials, Northern Rock gave up earlier gains to become the worst performer in the FTSE 100, down 4-1/2 at 86.9. The Treasury extended its guarantee on deposits at the stricken mortgage lender to cover a wider range of wholesale deposits, as talks with possible buyers continue.

London Stock Exchange was the top FTSE 100 performer, up 48 at 1,855 after Citigroup upped its price target to 1,825 pence, from 1,650, while maintaining a 'hold' rating. Heightened volatility caused by the credit crunch is proving positive for LSEs volumes, said Citigroup.

But Alliance & Leicester was off 23 at 635-1/2, as Moody's Investors Service said it has placed the group's 'B-' bank financial strength rating (BFSR) and 'Aa3' long-term bank deposit and debt ratings on review for possible downgrade.

Turning to the midcaps, AMEC was up 12-1/2 pence at 830, near its record closing high, after the FTSE Group confirmed the company will join the FTSE 100 index on Thursday, replacing ICI, which drops out on the takeover by Akzo Nobel.

FTSE's rules mean that AMEC's promotion precedes that of the seven companies that will go in on Christmas Eve as part of the quarterly reshuffle, even though its market cap was smaller than any of them on the day used as the basis for the reshuffle. AMEC only made the reserve list.

AMEC, which now focuses largely on oil services, has enjoyed a strong run recently, boosted by an upbeat trading statement last week and positive broker comment. Tradus was up 195 at 1,815, after Naspers made a recommended cash offer to buy the group for about 946 mln stg.

Aggreko was the top 250 riser, closing up 59-1/2 at 505-1/2, with the power rental business saying full-year performance will be slightly ahead of current market expectations, with operating profit in sterling terms ahead by about 50 pct.

National Express Group rose 44 to 1,105. The group said it traded strongly in the second half of the year, and expects its results for the year to end-December to be at the top end of market expectations.

Panmure Gordon upgraded its stance to 'buy' from 'hold' and repeated its 1,365 pence price target.
Meanwhile, G4S took on 6-3/4 to 214 after the security services group said it bought Global Solutions for 355 mln stg cash.

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Elsewhere, Cookson Group was 13 ahead at 672 following a positive trading update this morning, with Investec repeating its 'buy' recommendation and 940 pence price target. Also after an update, Petrofac rose 34-1/4 at 510. The oil and gas services provider said it expects net profit for the year to exceed market expectations.

Among casualties, Drax fell 45-1/2 to 623-1/2, making it the biggest midcap loser, following a disappointing trading statement this morning, with Dresdner Kleinwort saying it believes the news will bode negatively and repeating its 'hold' stance and 620 pence target.

Meanwhile, SIG lost 55 pence to 710, following read-across after peer Kingspan Group said the construction environment in the UK, Ireland and Western Europe into 2008 is more challenging than in recent times.

And finally, Bodycote International dropped 20-1/2 pence to 180, making it the biggest faller, following a trading statement. The company said sales growth for the year to date has been 18 pct at constant exchange rates, and it expects its full-year headline operating profit and sales to meet market expectations.

Numis Securities cut its target to 240 pence from 270, saying the shares are likely to remain under pressure in the current economic climate.

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

UK Small Cap Report:
For a summary of today's trading on the FTSE 250 and the AIM, click here

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Paris shares close down as Wall St falters, Goldman Q4 fails to reassure

The CAC-40 index ended down 5.51 points, or 0.10 pct, at 5,509.37, reversing earlier gains that took it as high as 5,581.18. The SBF 120 was down 7.71, or 0.19 pct, at 3,985.30. On the Matif, December CAC-40 futures were trading at 5,552.00. The euro was quoted at 1.4397 usd compared to 1.4375 usd late yesterday.

Societe Generale shares ended up 0.65, or 0.66 pct, at 99.11, off an intraday high of 100.85, BNP Paribas fell 0.10, or 0.14 pct, at 73.26, off a high of 75.10 and Credit Agricole was up 0.02, or 0.09 pct, at 23.16, off a high of 23.73. Dexia saw strong gains meanwhile, up 0.53, or 3.16 pct, at 17.30, buoyed by news Moody's has reaffirmed the credit rating of its US credit-enhancement unit FSA.

Pernod Ricard was the top CAC-40 riser, climbing 4.83, or 3.14 pct, at 158.61, as investors continue to speculate over the possible acquisition of Russia's Stolichnaya. Outside the CAC-40, Neuf Cegetel shares were suspended at the company's request, pending a statement.

Speculation has been mounting that Vivendi's telecoms unit SFR is poised to launch a 40 eur-per-share bid for the alternative telecoms group, in which SFR already holds a 40.5 pct stake. Vivendi, which ended down 0.09, or 0.29 pct, at 31.11, confirmed that SFR is in talks with Dreyfus, the second-largest investor in Neuf, with a 29.5 pct stake.

Aurel Leven analysts said such a deal "should be positive overall for Vivendi", giving SFR a genuine presence in ADSL, adding 3 mln broadband customers to the 300,000 acquired earlier year through the purchase of Tele2

Shares in Iliad, owner of internet service provider Free, rose sharply on the back of the speculation, adding 3.25 or 4.58 pct at 74.25.

Among today's fallers, defensive stocks such as food and cosmetics came under pressure, with L'Oreal shedding 0.57, or 0.59 pct, at 95.63. The share is still one of the top performers in the CAC-40, up 26.8 pct over the year to date.

Danone was down 0.51, or 0.87 pct, at 58.09. Retailer Carrefour shed 0.16, or 0.31 pct, at 51.37. The sharpest loser on the CAC-40 was Alcatel-Lucent, which ended down 0.07, or 1.36 pct, at 5.09, adding to yesterday's slide of over 5 pct after

UBS has lowered its price target saying the outlook for 2008 looks challenging. Mid and small caps saw heavier losses, with clothes retailer Etam developpement among the top fallers, down 1.74, or 4.95 pct, at 33.41.

Children's clothing specialist Du Pareil Au Meme yesterday reported a difficult month for sales in November, raising concerns over consumer spending in France. Property group Nexity was down 1.66, or 4.72 pct, at 33.50.

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German shares close higher on Wall Street gains, ECB tender

The DAX closed 25.30 points or 0.32 pct higher at 7850.74, after trading between 7,796.10 and 7,942.76.
The MDAX gained 42.93 points or 0.45 pct to 9,523.29, while the TecDAX was 1.92 points or 0.20 pct higher at 947.30.

DAX futures advanced 80.00 or 1.03 pct to 7,857.50, while bund futures retreated 0.06 or 0.06 pct to 113.23. The euro was trading at 1.4402 usd, against 1.4406 usd in midday trade.

On the Frankfurt trading floor, Merck KGaA rose 2.21 eur or 2.54 pct to 89.06 eur. Deutsche Boerse added 2.11 eur or 1.70 pct to 126.59 eur after Spanish counterpart Bolsas y Mercados Espanoles (BME) reiterated it is interested in taking part in European consolidation. Earlier this year, Deutsche Boerse was rumoured to be considering a bid for the exchange operator.

Siemens shares advanced 0.97 eur or 0.95 pct to 103.57 eur after UBS raised its price target on the electronic's giant to 135 eur per share and reiterated its 'buy' rating. Commerzbank added 0.18 eur or 0.69 pct to 36.56 eur, as the banking stock which benefited most from Goldman Sachs strong quarterly figures.

Hypo Real Estate followed, adding 0.19 eur or 0.52 pct to 36.74 as traders pointed to a correction from recent losses. Lufthansa was 0.26 eur or 1.45 pct higher at 18.24 eur, also correcting from yesterday's weakness. On the other end of the index, Fresenius Medical Care declined 1.08 eur or 2.96 pct to 35.40 eur, while Henkel declined 0.70 eur or 1.79 pct to 38.46 eur.

TUI shares retreated 0.23 eur or 1.21 pct to 18.85 eur after Deutsche Bank resumed its coverage with a 'sell' rating and a 16.10 eur-per-share price target, saying significant potential in the tourism business and an improved freight-rate environment have not offset the brokerage's recommendation that investors switch to TUI Travel PLC shares.

RWE dropped 0.51 eur or 0.53 pct to 95.27 eur after Gazprom said it is not interested in purchasing a stake in the German utility and Goldman Sachs cut its rating on the company to 'sell' from 'neutral'.

EON shares fell 0.75 eur or 0.52 pct to 143.79 eur after Goldman Sachs cut its stance to 'neutral' from 'buy' and pegged its price target at 152 eur per share. On the MDAX, Zapf Creation gained 0.14 eur or 4.13 pct to 3.53 eur to lead the index higher.

Lanxess shares gained 0.29 eur or 0.93 pct to 31.52 eur after the chemical company's chief executive Axel Heitmann today reiterated comments that a 1 eur-per-share dividend for 2007 may be possible and JP Morgan increased its target on the stock to 52 eur per share from 50.

At the other end of the mid-cap index, IKB Deutsche Industriebank retreated 0.66 eur or 9.27 pct to 6.46 eur. TecDAX-listed Software AG was the sharpest tech-stock gainer, up 3.22 eur or 5.88 pct at 58.00 eur after after Germany's second-largest software company tweaked up its full-year guidance for its 2008 earnings before interest and raised its tax margin to 23-24 pct, from an estimated 23 pct previously.

Conergy, at the other end, lost 1.09 eur or 5.11 pct to 20.25 eur. Carl Zeiss shares were under pressure, dipping 0.10 eur or 0.85 pct to 11.69 eur after chief financial officer Bernd Hirsch said in an interview with Focus Money that the medical technology company was suffering because of the recent weakness of the US dollar.

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Amsterdam shares close lower, as banks, oil-related stocks weigh

The AEX closed 0.74 points, or 0.15 pct, lower at 502.72, after opening at 502.05 and trading in the range 501.79-508.69. Government bonds traded mixed, while the euro stood at 1.440 usd versus 1.4375 usd late yesterday.
   
Banking stocks turned mostly negative, with ING off 0.11 pct at 26.41 eur and Aegon down 0.67 pct at 11.84 eur. Fortis closed the session flat at 17.78 eur.
   
Oil-related stocks reversed earlier gains, with Shell sinking 0.36 pct to 27.90 eur and SBM Offshore off 1.68 pct at 20.54 eur. On the midcap, Fugro fell 2.46 pct to 50.65 eur.
   
TomTom also came off earlier highs, dropping 3.31 pct to 49.62 eur, while DSM fell 3.18 pct to 32.91 eur. ASML was down 2.43 pct at 22.90 eur knocked by low prices in the memory-chip market. Yesterday shares in peer Micron Technology dropped near its 52-week low.
   
Heineken slipped 1.39 pct to 44.66 eur as investors cautiously wait to see if the Dutch brewer and Carlsberg will raise their takeover bid on Scottish & Newcastle. The UK Takeover Panel yesterday imposed a Jan 21 deadline on the consortium to announce either a firm intention to make an offer for Scottish & Newcastle walk away.
   
Hagemeyer led blue chip gainers, up 3.16 pct at 4.57 eur, on reports that Rexel is expected to press ahead with its proposed 4.85 eur per share takeover offer, according to the Financial Times.
   
Retail giant Ahold climbed 1.28 pct to 9.50 eur as UBS upgraded the issue to 'neutral' from 'sell', keeping its target at 9.80 eur.
   
Philips put on 0.70 pct at 30.0 eur. The stock was today added to Merrill Lynch's 'most preferred list' in the healthcare sector. The company also made its second acquisition in a month, taking over clinical information technology company VISICU for 12 usd per share, or around 290 mln eur.
   
ArcelorMittal put on 0.25 pct to 48.32 eur on news it signed an investment deal for a long carbon steel plant in Russia.
   
On the midcap, Vopak closed slightly higher, up 0.05 pct at 37.59 eur, on news it will jointly invest 800 mln eur alongside Gasunie in the construction of a new liquid natural gas (LNG) import terminal in Rotterdam, the Netherlands.

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