UK/Euro Financial Market Daily Evening Briefing 25-02-2008

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London shares close sharply higher; banks rally; Wall Street gains

At the close, the FTSE 100 index was up 111 points at 5,999.5, off a high of 6,011.7, while the FTSE 250 index was 224.3 points ahead at 10,275.3. Volume was well below average, with just 2.06 bln shares having changed hands in 638,203 deals.

The FTSE 100 once again going through 6,000, but failing to hold this level, drew comment from analysts. David Jones, Chief market Strategist, IG Index, said: "It's been another groundhog day for the FTSE 100 index. Once again a strong rally through the 6,000 mark has been short-lived as this psychological level proved to be too big a temptation and the sellers came out."

Over in the US, Wall Street turned higher on hopes that the worst housing slump in a quarter century might be nearing its low-point, a trend that could be the catalyst needed to revive the badly beaten financial sector.

Investors, while still wary of recession, grew hopeful after the National Association of Realtors reported existing homes fell less than forecast. Some experts interpreted this as a housing market on the verge of bottoming out with a rebound expected to start toward the end of this year.

Wall Street also found encouragement after Visa said it still planned to go ahead with a 19 bln usd initial public offering this year that could go down as the biggest in US history. Further, investors were still hoping that troubled bond insurer Ambac Financial Group Inc would receive a capital injection to help preserve its coveted "AAA" rating.

As the London markets were closing, the Dow Jones Industrial Average was up 71.4 points at 12,452.4. The S&P 500 was up 5.65 points at 1,358.75, while the Nasdaq Composite was 9.67 higher at 2,313.02.

Turning to UK equities, the banking sector remained in demand ahead of results later in the week and following M&A speculation in the weekend press. The Sunday Telegraph said Lloyds TSB could be weighing up takeovers, with Alliance & Leicester and Bradford & Bingley on the bank's list of tentative targets.

People close to Lloyds TSB, which announced strong full-year profits of 3.9 bln stg on Friday, warned it is "early days" and said the bank's board had yet to discuss formally an approach for one of its rivals, the newspaper reported. In another development, the Qatari government may be contemplating making an investment in Royal Bank of Scotland, The Sunday Telegraph said.

RBS closed up 19 pence at 397 ahead of full-year results on Thursday. Alliance & Leicester was the top FTSE 100 riser, ending the day up 45-1/2 at 555, which is still less than half of the 12-month high it reached in May.

HBOS rose 32 to 678 ahead of full-year numbers on Wednesday and Lloyds TSB rose 9 to 466-1/2. Lloyds TSB was upgraded to 'overweight' from 'equal-weight' at Lehman Brothers. In the midcaps, Bradford & Bingley was up 11-3/4 at 200-1/4.

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Meanwhile, Friends Provident took on 2.9 to 135 after a report in The Sunday Times said JC Flowers is in talks with a consortium of leading banks about providing financing for a bid for the insurer. Peers were also higher, with Prudential up 18 at 628 and Aviva, which reports on Thursday, closed up 19-1/2 at 588.

Away from financials, real estate investment trusts were in the spotlight after positive final results from Hammerson, with Deutsche Bank repeating its 'buy' stance and 1,400 pence price target.

Hammerson rose 63 to 1,122 as it said it remains confident of future progress despite uncertainty in its markets as it saw a 3 pct increase in full-year net asset value to 15.45 stg. Its peer Land Securities was up 88 at 1,626 and British Land was 33 firmer at 996-1/2.

Housebuilders were also higher ahead of their reporting season. Persimmon rose 47-1/2 to 763-1/2 ahead of results tomorrow. The group is expected to report a full-year pretax profit of about 590 mln stg, though investors will focus on its order book, down 14 pct at the year-end.

Midcap peer Barratt Developments, up 14-1/4 at 413, is seen highlighting its relatively stable order book at its interims on Wednesday, while Redrow, up 20-3/4 at 299-1/2, will report half-year results on Thursday.

In volatile trading, oil prices were higher but still below the 100 usd a barrel level. Brent for April delivery was recently trading up 63 cents at 97.64 and oil companies are gaining on the outlook for persistently higher prices in the coming months and years. Index heavyweight BP ended the day 14-1/2 pence higher at 562-1/2, ahead of chief executive Tony Hayward's strategy presentation on Wednesday.

Royal Dutch Shell was up 34 at 1,815. Only 13 FTSE 100 shares finished lower, and only five by more than 1 pct. Resolution was 1-1/2 down at 661-1/2, extending falls from Friday when the company said the takeover by Pearl Group was being further delayed.

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A note from analysts at MF Global today reiterated a 'buy' stance and said the deal is still likely to go ahead, but said some investors would be put off by the uncertainty.

Elsewhere, Associated British Foods, down 26 at 850-1/2, was the second-biggest FTSE 100 loser on profit-taking after the company said trading since its last update on Jan 17 had continued to be fully up to its expectations with first-half results set to show good growth in adjusted operating profit compared with the previous year.

On the second tier, Perth-based bus and train group Stagecoach ended the day 18-1/2 higher at 243 after the group said trading has been at the top end of forecasts and Merrill Lynch retained its 'neutral' stance. Peer Arriva was 39-1/2 higher at 714 as Deutsche Bank upgraded the group to 'buy' from 'hold'. National Express rose 64 to 1,125.

But industrial group Charter was the top midcap riser, up 85 at 868-1/2, continuing its rally from last week after Credit Suisse initiated the group with an 'outperform' stance and 1,050 pence target. Traders also highlighted a positive read-across from Q4 results Friday from US peer Lincoln Electric Holdings Inc.

Recruitment group Hays was up 9-3/4 at 116 ahead of interim results tomorrow and following solid figures from small cap rival Robert Walters today. Michael Page rose 21-3/4 to 298-3/4. On the downside, Premier Foods headed the midcap loser board, down 9 at 97 after ABN Amro placed 15 mln of the company's shares at 96 pence each, and with Credit Suisse slashing its target to 100 pence from 250.

Waste management group Biffa was off 22-1/4 pence at 345-3/4, having announced that "third parties" are no longer working towards making a competing offer for the company. On February 8, Biffa's board recommended a takeover offer from consortium WasteAcquisitionco Ltd and today reiterated its recommendation.

Business process outsourcing specialist Xchanging slipped 1-1/2 to 265-1/2 on profit-taking after it posted a 33 pct increase in its maiden full-year adjusted pretax profit.

UK Diary of Event:
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UK Small Cap Report:
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Paris shares close sharply up on bargain-hunting, US gains

The CAC-40 index ended up 94.71 points or 1.96 pct at 4,919.26 while the SBF-120 was up 66.99 or 1.91 pct higher at 3,566.29. On the Matif, March CAC-40 futures were trading at 4,935 and the euro was quoted at 1.4829 usd compared to 1.4824 usd late Friday.

Credit Agricole surged 0.84 or 4.82 pct at 18.25.

Elsewhere in the sector, Dexia climbed 0.63 or 4.01 pct at 16.35, while BNP Paribas rose 3.04 or 4.97 pct at 64.24 and Natixis added 0.26 or 2.64 pct at 10.11. Insurance giant Axa was up 0.67 or 3.00 pct at 23.03.

Societe Generale trailed, gaining 0.27 or 0.42 pct at 64.85. The group's capital increase was launched last Thursday and is scheduled to run until Feb 29.

EDF tumbled 1.95 or 3.00 pct at 63.00. In contrast, Alstom added 5.07 or 3.44 pct at 152.44 while Schneider Electric jumped 3.76 or 4.72 pct at 81.39.

Among other industrial stocks, auto makers rebounded from Friday's sharp losses, with Renault adding 1.39 or 1.99 pct at 71.10 and Peugeot up 1.12 or 2.20 pct at 51.92.

Total was up 1.01 or 2.02 pct at 50.91, while seamless tubemaker Vallourec added 1.22 at 137.75. In the midcap index, Technip jumped 1.32 or 2.51 pct at 53.95 and CGG Veritas rose 5.98 or 3.52 pct at 175.72.

Among other risers, Groupe Open surged 1.64 or 17.01 pct at 11.28 after announcing it has agreed to sell its server and systems unit Logix to Arrow Electronics Inc for 120 mln eur, more than the stock market valuation for the entire company.

German shares close higher, led by Commerzbank, on Ambac bailout reports

The DAX closed 76.27 points, or 1.12 pct, higher at 6,882.56 points after trading between a low of 6,825.12 and a high of 6,922.61. The MDAX gained 155.23 points, or 1.69 pct, to 9,334.69 points, while the TecDAX was 11.25 points, or 1.40 pct, higher at 815.72 points.

DAX futures advanced 15.50 points, or 0.23 pct, to 6,895.50, while bund futures declined 0.04, or 0.03 pct, to 115.72. The euro was trading at 1.4830 usd, against 1.4814 usd in London afternoon trade.

Dirk Becker at Kepler Equities pointed to the positive effects a help package for Ambac would have on Commerzbank and Hypo Real Estate. Commerzbank led the DAX, up 0.94 eur or 4.88 pct at 20.19, while Hypo gained 0.42 eur or 2.35 pct at 18.31, its fourth best performer.

Shares in Adidas rose 1.26 eur or 2.96 pct to 43.80, rebounding from losses last week that were associated with news it had lost its contract to outfit the French football federation team's kit.

TUI advanced 0.45 eur or 2.94 pct to 15.75. ThyssenKrupp jumped 0.81 eur or 2.23 pct 37.06, boosted by Austrian peer voestalpine AG, which reported third-quarter results today that were slighly above consensus.

Leading blue chips lower, SAP lost 0.29 eur or 0.89 pct to 32.22, as dealers said talk about possible future acquisitions for the software manufacturer was offsetting M&A speculation concerning the unlikely takeover from software giant, Microsoft Corp.

Fresenius Medical Care dropped 0.08 eur or 0.23 pct to 35.05. Volkswagen, being the last of three decliners on the DAX, decreased 0.05 eur or 0.03 pct to 150.00. Over on the MDAX, Praktiker rose 1.08 eur or 6.58 pct at 17.50 as the top advancer.

At the other end, Norddeutsche Affinerie declined 0.48 eur or 1.72 pct to 27.50. Hochtief was up 2.59 eur or 3.51 pct at 76.42 shored up by M&A speculation that Spanish building giant Actividades de Construccion y Servicios SA had increased its stake in the company to 30 pct.

A Hochtief spokesman said, however, that ACS holds a 25.08 pct stake plus options to buy another 4.9 pct, and even if they bought those, they would still be below 30 pct threshold prompting a mandatory bid. TecDAX-listed Aixtron increased 0.30 eur or 3.44 pct to 9.03, while United Internet dropped 0.14 eur or 1.06 pct to 13.13.

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Amsterdam shares close up led by financials, boosted by Wall St gains

The AEX closed up 7.38 points, or 1.63 pct, to 459.01 after opening at 457.09, hitting a mid-morning high of 461.71 and touching a late afternoon low of 454.62. Government bonds traded mainly lower, while the euro stood at 1.4825 usd, compared with 1.4824 usd late Friday.

Aegon led blue chip financials higher as it added 4.76 pct to 10.12 eur, followed by Fortis, rising 3.42 pct at 14.52 eur and ING, up 3.19 pct at 23.27 eur. Midcap financial SNS Reaal gained 1.52 pct to 14.0 eur and BinckBank added 0.36 pct at 8.40 eur as ABN Amro initiated coverage at 'hold', with a price target at 8.50 eur.

Oil issue SBM Offshore gained 2.99 pct at 21.69 eur while Royal Dutch Shell put on 1.16 pct to 24.51.

Heineken rose 1.71 pct at 37.57 eur amid reports that US rival Anheuser-Busch is mulling a counter bid for Scottish & Newcastle, trumping the 800 pence Heineken offered together with consortium partner Carlsberg. Philips added 1.33 pct at 26.68 eur as it extended the tender offer period for Respironics while it awaits EC regulatory approval for the deal.

Within the midcap sector, BAM rose 3.16 pct to 15.0 eur, while Wessanen advanced 4.70 pct to 9.58 eur ahead of its full-year results tomorrow. Heijmans lifted 0.33 pct to 24.26 as its CEO ruled out mergers or a takeover as the company seeks to recover its profitability via margin improvement.

Small cap stock Smit rose 4.37 pct to 57.80 eur after the company received a 300 mln usd offer for its oil and gas terminal services division from Boskalis 50:50 joint venture with Saudi Rezayat Group. Boskalis shares slipped 0.08 pct at 38.80 eur as investors mulled the 300 mln usd cash offer its Lamnalco joint venture has bid for Smit's terminal operations.

Local issue AMG surged 26.03 pct at 55.05 eur as it excited investors with the hopes of new silicon metal supply contracts in the coming months. On the AEX, TomTom led the few decliners, falling 2.81 pct to 34.21 ahead of Tele Atlas results expected later this week.

Unibail-Rodamco was down 0.53 pct at 164.24.
Vedior slid 0.35 pct to 16.88.
On the midcap, Oce slid 0.47 pct to 12.84.

CSM edged 0.05 pct lower to 18.72 ahead of results expected Wednesday.

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