UK/Euro Financial Market Daily Evening Briefing 27-11-2007

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At the close, the FTSE 100 index had dropped 39.8 points to 6,140.7, off a low of 6.061.8, and down from a high of 6,197.1, with the FTSE 250 index down 150.1 points at 10,302.8, knocked by sharp falls in Signet. Volume was weak, with 2.6 bln shares having changed hands in 837,270 deals.
   
"The retail news is certainly a factor affecting the FTSE," said Keith Bowman from Hargreaves Lansdown. "Continuing volatility in the US is also a major factor. Wall Street has a habit of changing in the last hour of trade, so what we're seeing now is not necessarily what's going to happen at the end," he added.
   
On Wall Street, by London's close, the DJIA was up 196 points at 12,939.8, with the Nasdaq 44.38 points higher at 2,585.37 and the S&P 500 index 20.2 points firmer at 1,427.4.
   
Helping to fuel gains was news that banking giant Citigroup would receive a 7.5 bln usd infusion from an Abu Dhabi investment fund. The New York-based Conference Board said that its Consumer Confidence Index dropped to 87.3, the lowest reading since 85.2 in October 2005 when gas and oil prices soared after hurricanes flooded New Orleans and shut down a large chunk of the nation's oil refineries. Analysts had expected a reading of 91.5 in November.
   
"The fall could be interpreted as good news, as it suggests there might be a rate cut," said Mic Mills, a futures trader from tradindex.com.  Turning to UK equities, retail environment concerns on both sides of the
Atlantic has hurt shares across the sector.

Among the blue-chips, Home Retail closed off 16-1/4 pence at 340-1/4, Marks & Spencer ended the session down 17 at 597, and Next closed down 68 pence at 1,709. Elsewhere, the miners continued to drag on the index as base metals prices slipped.
   
Antofagasta closed down 26-1/2 pence at 658-1/2, while Vedanta Resources ended the session 81 pence weaker at 1,975, and Kazakhmys lost 30 pence to 1,260-1/2.  Also weighing was S&P Ratings Services' comment that a significant slowdown in the Chinese economy will have an adverse effect on Australian mining companies, which have been the major beneficiaries of the China growth story in the recent past.
   
Negative broker sentiment affected a number of companies today, with Associated British Foods ending down 19 at 862-1/4, after UBS downgraded the food group to 'neutral', cut its target to 955 pence from 990 and lowered earnings estimates for 2008 and beyond because of the weaker US dollar.

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Shares in Prudential closed today's session off 8 pence at 624-1/4, following a target cut to 810 pence from 915 by Panmure Gordon.  United Utilities, meanwhile, ended the day down 4-1/2 pence at 719-3/4, with HSBC shaving its rating in the group to 'neutral' from 'overweight' ahead of this Thursday's first-half earnings.
   
On a brighter note, Barclays closed the session among the top gainers, up 27 at 524, after the bank reassured investors by saying it expects 2007 profit to meet analysts' expectations, helped by robust growth at its Barclaycard credit card unit.
   
Financials were also boosted by the news of Citigroup's cash injection.  Royal Bank of Scotland finished 9-1/4 higher at 422-1/4, while HBOS ended up 21-1/2 at 764.  But heading the blue-chip leaderboard at the close was Northern Rock, up 8.6 at 118.7, after Virgin chairman Sir Richard Branson said he was prepared to put 200 mln stg of his own money into the rescue of the bank, according to a report in the Times.
   
Elsewhere, BAE Systems ended the day up 1-3/4 pence at 462-1/4, after it emerged its unit BAE Systems C-ITS AB signed a contract to buy Pitch technologies AB, Sweden for 61.3 mln skr cash. Meanwhile, positive earnings news provided the spur for shares in water supplier Severn Trent, which finished up 45 at 1,507, after posting a 13.5 pct rise in profit for the first half of 2007 and reiterating that it expects summer flooding costs to remain in line with previous estimates.
   
Elsewhere, Tullow Oil was 15-1/2 pence higher at 603-1/2 at the close, with ABN Amro saying it looks attractive at current levels, retaining its 'buy' rating and upping its target to 645 from 595. Merrill Lynch reiterated its 'buy' rating and 650 price target on the company.
   
Turning to the second line, a profit warning sent shares in motor retailer tumbling 34.56 pct lower, off 18-3/4 pence at 35-1/2, as it warned that full-year 2007 operating profit would be below expectations.

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On a brighter note, shares in De La Rue closed at the top of the leaderboard, up 69 pence at 850, after the company announced a profit jump which exceeded expectations, prompting Panmure Gordon to reiterate its 'buy' recommendation.
   
The world's largest commercial producer of banknotes said pretax profit rose to 53.8 mln stg from 43.9 mln last year on a sales rise of 5.1 pct to 345.1 mln. Analysts had expected its first-half pretax profit between 51.8 mln stg and 52.8 mln.
   
Also experiencing good gains on the back of earnings news was WS Atkins, which finished up 35 pence at 1,200, after reporting a surge in first-half pretax profit, exceeding market expectations. The company also announced a share buyback programme.
   
Earlier, the design engineering consultancy group WS Atkins today reported a 46 pct increase in pretax profit to 42.7 mln stg, ahead of market expectations for a 29 pct rise, reflecting continued growth in "strong" markets and "good" performances across all business segments.

UK Diary of Events:

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UK Small Cap Report:

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The CAC-40 index closed down 24.22 points or 0.44 pct at 5,434.17.  On the Matif, December CAC-40 futures were trading at 5,433.00. The euro was quoted at 1.4830 usd, against 1.4860 yesterday.
   
AXA rose 0.70 or 2.70 pct to close at 26.58 eur, after Credit Suisse upgraded it to 'outperform' from 'neutral', while banking stocks were close behind. Societe Generale gained 1.88 or 1.96 pct to close at 97.87. BNP Paribas was up 1.29 or 1.83 pct at 71.79. Credit Agricole rose 0.38 or 1.75 pct to end the session at 22.15 and Dexia finished 0.25 or 1.47 pct higher at 17.30.
   
In Paris, Air France-KLM ended the session 0.15 or 0.62 pct higher at 24.40. The airline's stock had been retreating from gains after the publication of better than expected half year results last Thursday, but got a boost yesterday when Citigroup upgraded it to 'buy' from 'hold', albeit with a reduced price target of 35.4 eur from 38.2, on valuation grounds following the recent drop in the share price.
   
EADS, whose Airbus aircraft manufacturing unit signed a deal to deliver 160 passenger aircraft to China yesterday, ended the session 0.17 or 0.80 pct higher at 21.55.
   
On the downside, PPR was the day's biggest faller, ending the session 4.60 or 3.99 pct lower at 110.63. The group has been the focus of speculation after a report in yesterday's La Lettre de l'Expansion claimed it is poised to start exclusive talks with Clarins with a view to taking control of the cosmetics group.
   
However, this morning, French daily Le Figaro poured cold water on the idea, claiming PPR has already held talks with Clarins to exchange its Yves Saint Laurent Beaute business for a minority stake in Clarins.
   
"The idea now is that PPR and Clarins would merely exchange shares, so there would be no cash premium offered, or buyout of minorities," another dealer commented. Outside the CAC-40, Clarins fell 2.15 or 3.52 pct to close at 58.90.
   
Auto stocks ended the session lower. Peugeot was down 1.46 or 2.82 pct at 50.23. Michelin lost 2.30 or 2.96 pct to close at 75.36, and Renault edged down 0.87 or 0.92 pct to end the session at 93.78. US investment bank Goldman Sachs downgraded its outlook on the US automobile sector from 'neutral' to 'cautious' on the back of concerns of the effects of a slowing economy on car sales. The bank also downgraded the airline sector from 'neutral' to 'cautious' on lower expected loads and rising fuel costs.
   
Capgemini also fell, as elsewhere in Europe technology stocks took a battering. The company ended the session 1.28 or 3.33 pct lower at 37.14

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The DAX closed 36.01 points or 0.48 pct lower at 7,531.35 points, after trading between 7,444.62 and 7,546.41. The MDAX advanced 65.95 points or 0.71 pct to 9,295.33 points, while the TecDAX edged up 3.18 points or 0.35 pct to 905.36 points. DAX futures were up 99.00 or 1.33 pct at 7,567.00, while bund futures were 0.78 or 0.67 pct lower at 115.03.
   
The euro was trading at 1.4823 usd, compared with 1.4849 usd in midday deals. Leading the blue-chips lower, MAN slumped 4.08 eur or 3.80 pct to 103.29 eur after Goldman Sachs cut its price target on the truck maker to 148 eur from 158 eur. Traders also pointed to profit-taking after the stock's gains in the previous session.
   
Separately, printing press maker MAN Roland, in which MAN holds 35 pct, is preparing an initial public offering, Financial Times Deutschland reported, citing banking sources.
   
Other automotive stocks were also lower, with Daimler declining 1.06 eur or 1.61 pct to 64.79 eur and Volkswagen falling 2.31 eur or 1.45 pct to 157.00. VW earlier said it will invest 9.5 bln eur in the Volkswagen brand in the next three years, with 6.5 bln eur of the amount to be spent on new products.
   
SAP slid 0.30 eur or 0.87 pct to 34.31 eur. Lehman Brothers initiated coverage of SAP with an "equal-weight" rating and a 40 eur target. The brokerage said SAP is sporting a positive outlook in a tough
environment, but warned that much positive newsflow is unlikely as investors focus on US enterprise IT spending levels.

Heading the list of DAX gainers, Commerzbank and Deutsche Bank led financial stocks higher as positive news on Citigroup and Barclays helped the sector rebound from its recent slump. Commerzbank jumped 0.60 eur or 2.54 pct to 24.25 eur, while Deutsche Bank increased 1.25 eur or 1.50 pct to 84.48 eur.
Deutsche Postbank advanced 0.07 eur or 0.12 pct to 57.46 eur, Munich Re gained 0.43 eur or 0.36 pct to 120.77 eur and Allianz outperformed the broader market, having declined 0.08 eur or 0.06 pct to 133.92 eur.
   
Over on the MDAX, AWD rose 1.60 eur or 7.87 pct to 21.94 eur. Premiere was up 0.44 eur or 4.44 pct at 10.34 eur as Dresdner Kleinwort lifted its stance on the pay television supplier to 'hold' from 'buy'. It said
the risk-reward ratio of the stock has improved after its recent slump.
   
Meanwhile, steel maker Salzgitter slumped 4.13 eur or 3.96 pct to 100.09 eur after Goldman Sachs cut its price target to 130 eur from 158, saying in a note to investors that rising inventories could put steel prices under pressure and that steel demand could weaken.
   
Deutz lost 0.15 eur or 2.13 pct to 6.88 eur. Goldman Sachs cut its rating on the diesel engine producer to 'neutral' from 'buy', reducing its target on the stock to 8 eur from 10 eur. The brokerage said in a note it expects truck maker Volvo, Deutz's largest customer, to post lower earnings.
   
Bank IKB, reeling from losses in subprime mortgage investments, slipped 0.18 eur or 2.06 pct to 8.56 eur after state-owned KfW Bankengruppe, which owns 38 pct of IKB, raised its risk provisions. TecDAX-listed Conergy advanced 1.80 eur or 9.89 pct to 20.00 eur after the solar energy company said executives bought shares, including a purchase of 100,000 shares by interim chief executive Dieter Ammer.
   
Versatel advanced 1.36 eur or 7.93 pct to 18.50 eur. Yesterday's news that Berenberg Bank hiked its holding in the telecommunications supplier to 10.73 pct is fuelling takeover speculation, traders said.

Tie-ups between internet access providers would make sense because of the cost-cutting potential, WestLB analyst Stefan Borscheid said in a note. He cut his recommendation on the stock to 'hold' from 'add', however, saying recent gains have limited the stock's upside potential. At the other end of the index, Bechtle fell 1.09 eur or 3.89 pct to 26.95 eur.
   
Software AG, also a TecDax member, lost 1.25 eur or 2.43 pct to 50.13 eur as JP Morgan lowered its price target to 74 eur from 87, but confirmed its 'overweight' rating, saying recent losses were not justified.

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The AEX closed up 0.42 points or 0.09 pct at 492.24, after opening at 487.98 and trading in the range 486.73-494.83. Government bonds traded lower while the euro stood at 1.4825 versus 1.4859 usd late yesterday.
   
Financials finished the day on a strong run, with Fortis closing as lead gainer, up 2.41 pct at 17.83 eur, as the decision by a Middle Eastern state fund to inject 7.5 bln usd into Citigroup boosted investor confidence in the financial sector. Aegon closed 2.40 pct up at 11.96 eur, while ING finished the day 1.08 pct higher at 25.38 eur.
   
Oil-services group SBM Offshore climbed 0.56 pct to 23.25 eur as ABN Amro upped its rating to 'buy' from 'hold' and hiked its target to 30 eur from 28, as it sees the Dutch oil services group benefiting from a "frantic search for new oil and gas deposits".
   
On the mid cap, Ordina gained 3.14 pct to 11.50 eur. Earlier research bureau IRIS said the company's share price could recover in 2008, as the bureau named the Dutch IT services company one of its top picks for Euronext Amsterdam stocks next year.
   
Steel giant ArcelorMittal slipped 2.94 pct to 47.25 eur. Earlier, Goldman Sachs cut its price target on steel maker Salzgitter AG to 130 eur from 158, saying rising inventories could weigh on steel prices next year.  On the midcap, Binckbank fell 4.87 pct to 14.25 eur after it said it will issue 385 mln eur in new shares at a stronger-than-expected discount of 24 pct, market sources said. LogicaCMG fell 5.78 pct to 1.63 eur while Fugro was off 3.26 pct at 50.69

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