UK/Euro Financial Market Daily Evening Briefing 22-08-2007

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London shares close higher as interest rate expectations boost US markets

The FTSE 100 rallied sharply Wednesday as hopes of lower US interest rates restored some investor confidence, although with many traders still absent, and the full extent of the credit crisis still unknown, many remained less than convinced by today's move.
   
By the close, the FTSE 100 ended up 109.9 points at 6,196.00, with the broader FTSE 250 up 271.4 at 10,910.7. The other indices ended higher.
   
"I'm far from convinced by today's rally," Roger Cursley a senior strategist at Investec said in response to today's move. "There are still significant hurdles to be cleared before the markets can begin returning to some degree of normality. It's the eye of the storm, and a knee-jerk reaction to expectations for lower rates."
   
Among today's main stories, mining issues dominated the limited corporate newsflow and the leaderboard with BHP Billiton's record profit providing much of the catalyst behind the sector's strength.
   
The world's largest mining company, posted a 35 pct increase in full-year attributable profit, on higher production and prices for its key products, although rising mining costs and adverse exchange rates had a negative impact.
   
Importantly for investors, BHP said its customers indicated that they do not expect the volatility in the US and European credit markets to have a material impact on raw material demand. BHP's shares ended up 64 at 1,365. Peers Rio Tinto took on 209 at 3,280 with Lonmin, today's top gainer, up 214 at 3177.
   
Elsewhere, restaurant and pub operator Punch Taverns rallied 62 to 1,039 after JP Morgan reiterated its 'overweight' rating and 1600 pence target with the broker saying the stock has been oversold and represents a buying opportunity ahead of its Sept 6 trading update.
   
Among financials, Northern Rock got a lift after Cazenove added some fuel to the M&A rumour mill noting that HSBC would be a good fit even if circumstances probably rule out a takeover in the short-term. Northern's shares gained 26 to 728 with most of its peers also finishing strongly, with HSBC up 11 at 907, Barclays up 5 at 633 and Lloyds TSB adding 8 to 552.
   
Also benefiting from the relative calmness in the markets, Man Group took on 23-1/2 pence at 481-1/2, Investec up 23 at 605 and Standard Chartered 34 pence firmer at 1,575.
   
Turning to M&A, Sainsbury's added 15-1/2 pence stronger at 530-1/2, as stake building continued in the sector and rumours emerged that Delta 2 could improve its bid for Sainsbury as early as today.

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Elsewhere, positive broker comment helped Persimmon shares rise 30 pence to 1,253, with Panmure Gordon initiating the housebuilder as 'buy' with a 1,423 pence target, following yesterday's solid set of interim results.
   
On the downside, ex-dividends considerations dominated the fallers. Among the companies suffering after trading ex-dividend were DSG International Pearson, BT Group and Scottish & Southern Energy among several others.
   
Turning to the mid-caps, Severfield-Rowen was a top performer, up 184 pence to 2,268 after the firm said it has agreed to buy steel fabricator Action Merchants for a total of about 90 mln stg in cash and stock.
   
Elsewhere Keller Group was up 63 pence at 987, extending its post-results advance, with Altium Securities upping its estimates and repeating its 'buy' stance with 1,150 pence target on the contractor.
   
Tullow Oil also remained a top gainer, up 20-1/2 pence to 483 after the group said that the Hyedua-1 well drilled on the Deepwater Tano licence offshore of the Republic of Ghana has discovered a "significant" light oil accumulation. The news prompted KBC Peel Hunt to upgrade its rating to 'buy' from 'hold'.
   
A broker upgrade helped Marston's shares add 10 pence at 342 with Altium Securities upping its stance to 'buy' from 'hold', citing the pub chain's potential for more upside over its rival Greene King.
   
And positive broker comment also helped propel Kesa Electricals shares up 12 pence to 301-3/4 with Morgan Stanley upping its recommendation to 'equal-weight' from 'underweight' on valuation grounds.
   
But on the downside, shares in Venture Production dropped 10 pence at 741-1/2 following mixed drilling results, and with Evolution Securities prompted to cut its rating from 'buy' to 'add' in the short-term on valuation grounds.
   
Looking to Wall Street, US stocks jumped Wednesday as Wall Street interpreted a pullback in Treasurys and new talk of takeover deals as signs that recent credit market tightness might be easing.
   
By the London close the DJIA was up 92.3 points at 13,182.3, with the Nasdaq up 22.3 at 2543.6 and the S&P 500 up 8.49 at 1455.86. Speculation was fuelled after a Deutsche Bank note suggested the Fed could cut the Discount Rate again, possibly by the end of the week. 
   
The note said the move will aimed at addressing liquidity problems in the money market, not least for the commercial paper market -- although this was viewed as less likely given today's recovery.

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UK Small Cap Report

For a summary of today's trading on the FTSE 250 and the AIM, click here

UK Diary of Events

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

Milan

Milan shares track rest of Europe higher; Fiat, AEM continue to lead rise

Milan's major indices returned to levels seen before the sharp sell-off seen last week with the Mibtel finishing up 1.74 pct at 30,731 and the S&P/Mib ending up 1.64 pct at 39.590. Volumes traded were worth some 5.831 bln eur, almost 40 pct less than the levels seen last Friday when the Fed cut the discount rate, giving a boost to the market.
   
Fiat slightly accelerated gains, ending up 3.97 pct at 19.48 eur after Moody's upgraded its corporate family rating and other long-term senior unsecured ratings to 'Ba1' from 'Ba2' with a positive outlook. The ratings agency said that if Fiat's financial flexibility continues to improve and the growth is sustained in 2008 and beyond, the ratings could return to investment grade within the next 6-12 months.
   
AEM also continued to be a leading gainer, finishing up 4.59 pct at 2.5425 with some dealers attributing the rise to reports that its Swiss shareholder Atel is buying shares in order not to dilute its position with the upcoming merger between AEM and ASM Brescia.
   
Others attribute the rise to a renewed interest in the utility sector and the fact that the share was sharply penalized in the past week, and is now returning to its late July level. ASM finished up 5.01 pct at 4.15.
   
In the banking sector, Banca Popolare di Milano was the leading gainer, finishing up 2.98 pct at 10.31 after its chairman said that he still hopes in a merger with Banca Popolare dell'Emilia Romagna after the first attempt fell through in June.
   
Among other banking shares, Unicredito finished up 2.10 pct at 6.285 while its merger partner Capitalia rose 1.84 pct at 6.97. UBI Banca finished up 2.10 pct at 18.80, while Banco Popolare added just 0.63 pct at 18.71 after yesterday's strong rise.
   
Broker Rasbank notes that Banco Popolare continues to be under-valued and therefore keeps its 'outperform' stance on the stock with a 25 eur target.
   
Banca Italease, in which Banco Popolare has a stake of some 30 pct, continued to be a star performer, ending up 7.78 pct at 15.54 after its shareholder syndicate who will propose to name Lino Benassi, former chairman of Toro Assicurazioni, as the new chairman.
   
The Bank of Italy forced Italease to name a new board after the group showed unexpected losses on derivatives contracts.
   
Also leading the market higher was Finmeccanica, which ended up 3.19 pct at 20.72, on comments from Russia's Sukhoi Holding general director Mikhail Pogosyan who said there will be 100 orders by the end of the year for the Superjet 100, being developed along with Finmeccanica unit Alenia.

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Paris shares close up sharply; bargain-hunting dominates

The CAC-40 index finished up 99.39 points or 1.83 pct at 5,518.17. All CAC-40 stocks closed higher. On the broader indices, the SBF-80 index closed up 143.73 or 2.22 pct at 6,605.64 and the SBF-120 ended 74.52 or 1.89 pct higher at 4,022.35.
      
The biggest blue chip climbers at the close were property company Unibail-Rodamco -- up 11.43 eur or 6.63 pct at 183.73 -- and construction group Vinci -- 3.07 or 6.41 pct higher at 51.00.
   
In the absence of significant company-specific news, dealers pointed to buying of housing-related stocks that have fallen sharply amid the deepening subprime crisis.
   
Exane BNP Paribas analyst Steven Fernandez argued that Vinci had been "penalised excessively" in recent weeks, while he also pointed to buying stimulated by hedge funds selling positions in order to obtain liquidity.
   
Auto industry shares were all outperforming, led by Renault -- up 4.50 or 4.77 pct at 98.79. A top Renault official told daily Le Monde that he expects the company's unit sales growth to meet targets set for the 2005-09 period, with 800,000 additional vehicles being sold.
   
Yesterday's announcement that the new Laguna will go on sale on October 12 also helped refocus investor attention on Renault's new-product offensive. Peugeot was up 1.15 or 1.93 pct at 60.70 while tyre maker Michelin added 2.29 or 2.60 pct to 90.39.
   
Metal companies continued to recover from last week's sell-off linked to investors moving away from commodities. Tube maker Vallourec ended up 8.16 or 4.47 pct at 190.71, and steelmaker ArcelorMittal rose 2.11 or 4.98 pct to 44.45.
   
Separately, a court in Rotterdam will issue its ruling at 2 pm on Monday in a case brought by three activist hedge funds contesting the terms of the merger betwen Arcelor and Mittal, according to the lawyer representing the funds.
   
Banks were among the more modest climbers on the CAC-40 as investors remained wary about subprime fall-out. BNP Paribas added 0.34 or 0.43 pct to 78.66, while Societe Generale rose 1.39 or 1.18 pct to 119.29.
   
Elsewhere, investment company Eurazeo's decision to adjust its holdings in Air Liquide and Veolia Environnement had an impact on each of the stocks. Eurazeo itself climbed 3.36 or 3.77 pct to 92.49 as analysts welcomed the French holding company's move to increase its stake in Air Liquide to 5.5 pct from 2.1 pct, while mulling the sale of its 2.1 pct position in Veolia.
   
Exane said the way the company has been managing its portfolio of investments "carries some performance", while CA Cheuvreux called the strengthening of its Air Liquide stake an "attractive" move.
   
Air Liquide ended up 3.39 or 3.85 pct at 91.50. Veolia was lifted by the rest of the market to close 0.53 or 1.01 pct higher at 52.97.

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German shares close higher, cyclical stocks strong

The DAX closed 75.73 points or 1.02 pct higher at 7,500.48. The MDAX was up 277.42 points or 2.85 pct to 10,021.32, while the TecDAX gained 31.15 points or 3.66 pct to 881.27. DAX futures were up 96.50 points or 1.30 pct at 7,524.50, while bund futures declined 0.60 or 0.53 pct to 113.27 points.
   
Marching to the top of the DAX, TUI climbed 0.89 eur or 5.16 pct to 18.14 as traders said shares in the tourism and shipping conglomerate were enjoying a rebound from recent losses.
   
The traders said Tui shares were seeing further support from strong numbers released by peer Toll Holdings Ltd, Australia's largest freight company.
   
MAN added 3.73 eur or 3.95 pct to 98.23, largely due to a rebound from early losses.
   
DaimlerChrysler added 2.19 eur or 3.61 pct at 62.81, after daily Handelsblatt cited company sources as saying the automaker intends to make an announcement on Aug 29 about what it plans to do with the extra cash it will have as a result of the sale of its Chrysler division.
   
Analysts believe there is a good chance the excess liquidity of around 10 bln eur will be used to fund either a special dividend or a stock buyback programme.
   
Infineon was 0.30 eur or 2.76 pct firmer at 11.16, after chief executive Wolfgang Ziebart said the company is planning further acquisitions subsequent to its takeover of LSI's mobility products. "The move might be a signal to investors that things are running much better at Infineon after a 3-year-long restructuring programme," said a Frankfurt-based trader. Lufthansa was up 0.46 eur or 2.29 pct to 20.59.
   
At the other end, Fresenius Medical Care declined 0.67 eur or 1.89 pct to 34.86, as today's worst performer. Henkel fell 0.26 eur or 0.74 pct to 35.00, while RWE was down 0.36 eur or 0.44 pct to 80.78.
   
Over on the MDAX, Kloeckner & Co was the strongest performer of the day, rising 2.88 eur or 6.89 pct to 44.67. Krones was down 107.94 eur or 65.87 pct at 55.77 after carrying out a 3-for-1 stock split.
   
Beiersdorf followed, down 0.21 eur or 0.43 pct to 48.16, on talk Deutsche Bank has placed 1 mln shares in the company at 47.50 eur a share. TecDAX-listed Nordex gained 2.44 eur or 9.50 pct to 28.13, while Adva declined 0.09 eur or 1.45 pct to 6.10.

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Amsterdam shares close higher as blue-chips add strong gains

The AEX closed 8.69 points or 1.72 pct higher at 514.30 after opening at 507.95 and trading in the range 507.71-515.44. Government bonds traded lower, while the euro stood at 1.3526 usd against 1.3494 usd late yesterday.
   
Franco-Dutch property group Unibail-Rodamco led index gainers, closing 6.07 pct higher at 183.17 eur. The group's expected to report strong growth when it reports first half results next Monday, as it continues to benefit from bullish fundamentals. Midcap peer Wereldhave surged 4.46 pct to 88.12 eur and Corio added 4.43 pct to 55.87 eur.
   
Steel giant ArcelorMittal closed 4.86 pct higher at 44.41 eur. Earlier, the civil court in Rotterdam said it will issue its ruling at 2 pm on Monday in a case brought by three activist hedge funds trying to block the merger of Arcelor and Mittal, the lawyer representing the funds told Thomson Financial News.
   
Retailer Ahold jumped 3.65 pct to 9.38 eur ahead of its four-for-five reverse stock split today and capital repayment on August 28, while TNT was 3.20 pct up at 30.97 eur.
   
Staffer Randstad put on 2.35 pct to 42.17 eur, while Vedior added 2.20 pct to 17.20 eur and midcap peer USG People closed 1.98 pct higher at 24.17. Earlier, the company said it will buy back 200,000 shares to fund its management participation programme, paid for from existing funds.
   
Among financials, ABN Amro gained 1.97 pct to 34.47 eur. Earlier, the Dutch Finance Ministry said possible undesirable developments in the financial sector in the Netherlands, rather than the issue of jobs, will form the basis of its assessment of the possible takeover of ABN Amro by the Royal Bank of Scotland-led consortium.
   
ING finished the day 0.85 pct stronger at 29.57, Fortis was 1.42 pct up at 27.07 eur and Aegon closed 0.75 pct up at 13.43 eur.
   
On the midcap, Boskalis Westminster surged 6.30 pct to 27.0 eur following an upgrade to 'buy' from 'hold' at brokerage Kempen & Co and ahead of first-half results due tomorrow, in which the group's expected to report a strong rise in sales.
   
DSM was one of only two fallers, off 0.38 pct at 36.92 eur, while Numico closed down 0.09 pct at 53.75 eur.

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