UK/Euro Financial Market Daily Evening Briefing 28-01-2008

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London shares close lower, weighed down by miners, housebuilders

By the close, the FTSE 100 index was off 80.1 points at 5,788.9, having recovered from a session low of 5,705.1, and fallen from a high of 5,869, with the FTSE 250 index down 98 points at 9,640.5. Volume was fair, with 2.198 bln shares having changing hands in 742,186 deals.

On Wall Street, by London's close, the DJIA was up 85.5 points at 12,292.7, while the S&P 500 index was 13.15 points ahead at 1,343.75, and the Nasdaq composite index was 16.26 points higher at 2,342.46. Strong results from Verizon helped temper poor housing data and ongoing concerns about the economy.

Back in London, the majority of miners proved a drag on the FTSE 100 index, amid a mixed picture for metals, with copper prices lower, and gold prices strong.

Anglo American closed 125 pence lower at 2,465, Rio Tinto ended the session down 147 at 4,459, Antofagasta was off 24-1/2 pence at 627-1/2, Lonmin closed off 32 at 2,867, and Vedanta Resources dropped 20 to end at 1,811, despite a Goldman Sachs upgrade to 'neutral' from 'sell'.

Ongoing interest-rate concerns put pressure on the housebuilders, with Taylor Wimpey leading the blue chips lower, down 10.1 pence at 183.3, Wolseley ending the day off 29-1/2 at 700, and Persimmon closing 35-1/2 lighter at 790-1/2.

Today brought more bad news for the sector, with leading property website Hometrack's latest monthly survey showing house prices in the UK fell during January for the fourth month running.

The oil majors were also lower as oil prices continued to trade down below the 90 usd mark on fears of global slowdown. Royal Dutch Shell dropped  21 to end at 1,818-1/2, though it was upgraded to 'buy' from 'hold' this morning by Dresdner Kleinwort, while BP was off 7 at 530-3/4, and BG Group closed down 8 at 1,021-1/2.

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Elsewhere, a broker downgrade helped send shares in Shire 43-1/2 lower to 947, with Sanford Bernstein cutting its rating to 'underperform' from 'market perform', and reducing its target to 910 pence from 1,120, citing the slow performance of recent drug launches.

Turning to the blue-chip gainers, Whitbread ended the session up 21 at 1,257, following press reports that property magnate Asif Aziz has an 8 pct slice of the leisure group.

Bucking the downward trend among miners was Xstrata, up 12 at 3,512, with the Sunday Times reporting that the Brazilian mining giant Vale, formerly known as Companhia Vale do Rio Doce (CVRD), has taken a decisive step towards a bid for Anglo-Swiss miner by lining up a 50 bln usd financing package from a group of global banks.

Xstrata also said the resource estimate for the Collahuasi copper mine in Chile has been raised 28 pct. BAE Systems, meanwhile, climbed 5-1/4 to 473-1/4, after the defence group said the UK government had chosen it to spearhead a drive to improve purchasing of high-tech, safety-critical defence software.

And good gains were seen from Johnson Matthey, up 32 at 1,7947, ahead of a trading statement tomorrow. Turning to the second line, a broker downgrade helped send shares in JD Wetherspoon 23-3/4 lower to 314-1/4, with ABN Amro cutting its rating to 'hold' from 'buy'.

And fellow pub operator Mitchells & Butlers lost 8-3/4 to 382-1/4. The company is understood to be considering the closure of a disastrous hedging position in a move that could cost it substantially more than 260 mln stg, well in excess of a year's profit, according to The Guardian.

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On a brighter note, Eaga finished 13-1/2 ahead at 141-1/2 ahead of interims tomorrow. Meanwhile, Carpetright climbed 19 to 799, after Deutsche Bank upgraded its rating on the company to 'buy' from 'hold', saying dividends will increase, and pointing to the recent decline in the share price.

And finally, Northern Foods also benefited from a broker upgrade, up 4 at 96-1/4, with Goldman Sachs raising its stance to 'buy' from 'neutral'.

UK Diary of Events:
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 lower, paring losses on mixed US; SocGen extends drop 

The CAC-40 index finished down 29.82 points or 0.61 pct at 4,848.30. Among CAC-40 stocks, 15 closed higher, 24 closed lower, and one closed unchanged. On the Matif, February CAC-40 futures were trading at 4,854.5.

On the broader indices, the SBF-80 index closed down 50.17 or 0.91 pct at 5,441.69, while the SBF-120 ended down 22.94 or 0.65 pct at 3,502.93. The euro was quoted at 1.4794 usd compared to 1.4709 usd late Friday.

Societe Generale pulled back from an earlier low of 66.80 but still ended down 2.82 eur or 3.82 pct at 71.05 as brokers took a negative line and the bid speculation from Friday began to subside.

According to Citigroup analysts, "for the shorter term at least, the ability for any suitor to spend 35 bln eur-plus for a French bank would appear to be unlikely, given the difficulties in the credit markets and ability to raise funding..." The broker cut its stance on SocGen to 'sell' from 'buy', pointing to the "enduring consequences" of last week's fraud allegations and potential for further writedowns.

Dealers also pointed to concerns over the upcoming capital increase which are weighing on the share.  "The market is realising that the capital increase will probably be priced at between 50 and 60 eur (per share), because JP Morgan and Morgan Stanley

(which are underwriting the deal) don't want to take on too much risk. That means major dilution for existing shareholders," a local dealer said. WestLB concurred, dropping its recommendation on SocGen to 'hold' from 'buy' and cutting its price target to 78 eur from 140 to reflect the dilutive effects of the rights issue.

Building stocks also took a tumble, amid fears of a global housing slowdown. Lafarge shed 5.59 or 4.97 pct to 106.84 to finish as the heaviest bluechip faller, penalised by a downgrade to 'underperform' from 'neutral' as Credit Suisse added weight to the fears.

The broker thinks any evidence of slowing growth in developing regions is likely to result in a significantly negative share price performance, and added that the hoped for growth from emerging markets is already priced in.

Fellow building materials supplier Saint-Gobain gave up 0.81 or 1.55 pct to 51.41, on ongoing concerns sparked by its prudent 2008 outlook at last week's sales publication. Oil giant Total also helped drag down the market, losing 0.71 or 1.42 pct to 49.26, as crude prices fell on the back of economic worries.

Natixis Securities cut its price target to 75 eur from 85 in the wake of the comments, saying it is integrating a higher risk premium for the share. On the upside, auto stocks continued their gains of recent days. Peugeot led the CAC-40 at the close, adding 1.50 or 3.05 pct to 50.69, while Michelin climbed 1.81 or 2.78 pct to 66.87.

Among the rare risers today, drinks maker Remy Cointreau added 1.53 or 3.93 pct to 40.43, helped by a positive note from Goldman Sachs. The US broker added the company to its 'conviction buy' list, saying the French group is an ideal takeover target in the next round of sector consolidation, which is likely to follow the privatisation of V&S Group (owner of Absolut Vodka).

Goldman also highlighted Pernod Ricard as one of the best-placed to resist the threats faced by the European beverages industry, notably a US recession, thanks to its emerging markets exposure and strong brand equity. Pernod shares outpeformed the market and ended up 0.55 or 0.78 pct at 71.26.

Among small caps, Wavecom jumped 0.78 or 8.17 pct to 10.33, after the telecoms equipment maker announced the signing of a memorandum of understanding with Ingenico for co-development of wireless payment electronics terminals.

The deal is positive for Wavecom as it will increase the volume of business the company receives from Ingenico in one of the most dynamic segments, Natixis Securities analysts said, keeping an 'Accumulate' ranking and 19.50 eur target.

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German shares close marginally higher, tracking Wall Street rebound

The DAX closed up 2.11 points or 0.03 pct at 6,818.85, after having traded between 6,680.30 and 6,827.37. The MDAX slid 145.73 points or 1.69 pct to 8,499.21, while the TecDAX fell 8.68 points or 1.11 pct to 775.36.

DAX futures gained 76.50 points or 1.13 pct to 6,853.50, while bund futures were down 0.06 points or 0.05 pct at 116.52. The euro was trading at 1.4788 usd compared to 1.4780 in London late afternoon trade.

Deutsche Boerse led blue chips higher, rising 3.24 eur or 2.78 pct to 119.58. Allianz climbed 2.16 eur or 1.78 pct to 123.78 as traders noted vague talk the German insurance group is planning to sell all or part of its Dresdner Bank unit although few believed there is any foundation to the rumour.

Munich Re added 1.56 eur or 1.39 pct to 113.98 after chief executive officer Nikolaus von Bomhard told Sueddeutsche Zeitung the reinsurer is not directly exposed to subprime risks. Continental gained 1.09 eur or 1.50 pct to 73.90, while Daimler ascended 0.72 eur or 1.40 pct to 52.10.

At the other end, Postbank fell 1.68 eur or 3.04 pct to 53.58, as the biggest decliner of the day. Infineon Technologies followed, down 0.15 eur or 2.38 pct to 6.16 after Lehman Brothers cut its target to 8.50 eur from 13.00 while maintaining its 'overweight' stance.

ThyssenKrupp lost 0.61 eur or 1.85 pct to 32.36 after management board member Karl-Ulrich Koehler said the steel maker is burdened with cost pressure for raw materials and energy. He added that the company hopes to offset this by achieving higher sales prices.

Adidas was also among today's biggest decliners, dropping 0.68 eur or 1.64 pct to 40.82, while BASF lost 1.10 eur or 1.31 pct to 83.16.

Over on the MDAX, Premiere gained 0.49 eur or 3.57 pct to 14.20 as rumours re-emerged Vivendi or News Corp may be preparing a takeover bid for the German pay TV company.

Meanwhile, Arques Industries dropped 0.96 eur or 6.42 pct to 14.00. TecDAX-listed Wirecard rose 0.39 eur or 4.14 pct to 9.81, while Carl Zeiss Meditec declined 0.54 eur or 4.89 pct to 10.50.

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Amsterdam shares close slightly higher; Fortis soars

At the close, the AEX was 0.63 points or 0.14 pct higher at 439.32. Government bonds traded higher, while the euro stood at 1.4784 usd, compared with 1.4694 usd late Friday.

Fortis was 8.33 pct higher at the close at 14.31 after it said its 2007 net profit before divestments could be lowered to 3 bln eur from 4 bln because of its subprime exposure, depending on which market scenarios apply.

However, its capital and solvency position remains sound and it plans to maintain its dividend at last year's level of 0.59 eur a share and it is not considering issuing new shares.

Analysts said the news was reassuring as it is comforting to know that Fortis does not have "a capital issue" and does not intend to lower its dividend or issue new shares. Peer financials ING and Aegon were also higher after tumbling late on Friday as fears of profit warnings proved unfounded.

ING gained 1.85 pct 22.00 whilst Aegon rose 0.80 eur to 10.14. Unibail-Rodamco added 1.44 pct to 155.48 after the real estate company and Paris's Chamber of Commerce and Industry (CCIP) signed an agreement finalising the merger of their convention and exhibition activities.

At the other end of the index, Corporate Express dropped 3.22 pct to 3.91 and ASML was 2.98 pct lower at 18.54.

Steel giant ArcelorMittal fell 0.76 pct to 43.37 after the company said it started a 50-50 joint venture with BE Group to combine their processed flat carbon steel operations in Sweden, creating the third largest player in the market with sales of more than 80 mln eur per year.

On the midcap, dredging company Boskalis lost 5.89 pct to 34.81. Van der Moolen led the midcap gainers, up 4.65 pct at 2.70. Local issue Super de Boer jumped 13.23 pct to 3.68 after Casino upped its stake in the company to 51 pct from 45.

Pharming rose 1.80 pct to 1.13 after a unit DNage led-research consortium received a three year grant amounting to 905,000 eur to look into the development of a treatment for premature aging diseases.

Pharming said it expects the additional funding to accelerate its drug development programme which involves the start of a clinical programme later this year to test a new product.

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