UK/Euro Financial Market Daily Evening Briefing 28-02-2008

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London shares close sharply lower; NY drops on data; results disappoint

At the close, the FTSE 100 index was 110.8 points weaker at 5,965.7, just above the late session low of 5,960.3 and well below the early peak of 6,090.8.

All the broader FTSE indices also ended lower, with the FTSE 250 index finishing down 190.3 points at 10,274.3. Volume was moderate, however, with 2.582 bln shares changing hands in 746,099 deals.

On Wall Street, by London's close, the DJIA was down 156.80 points at 12,537.50, while the S&P 500 index was off 16.25 points at 1,363.75, and the Nasdaq composite index shed 28.09 points at 2,325.69.

In London, corporate news was the dominate feature on the movers boards. Rentokil Initial was the day's biggest blue chip casualty, dropping over 23 pct in value, off 24.5 pence at 80.5 after issuing another profit warning. Elsewhere, Royal Bank of Scotland shares ended lower after a volatile session, losing 8 pence at 402 as investors assessed a slightly mixed set of full-year numbers from the bank which won last year's auction for ABN Amro.

RBS saw its 2007 underlying pretax profit come in at 10.298 bln stg, up 9 pct compared with the previous year and in line with consensus expectations, but news of further credit crunch write-downs re-ignited worries over the bank's capital strength after recent possible rights issue rumours. Merrill Lynch noted that while RBS's pretax profit was above its estimate, the figures included an additional write-downs of around 450 mln stg in respect of monoline exposures which were not anticipated within its forecasts.

Banking peer HBOS, which reported weak full-year results yesterday, was also on the back foot again today, losing 22 pence at 635 with Citigroup downgrading its rating for the stock to 'sell' from 'hold'. And other blue chip banks were lower as well, with Alliance & Leicester shedding another 29 pence at 565, and Barclays down 19-1/2 pence at 500-1/2.

Away from financials, Yell Group was a big faller in the afternoon, shedding 30-1/2 pence at 242-1/2 -- an 11 pct drop in value -- after a US directories peer RH Donnelly lowered its outlook for 2008.

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Xstrata lost 168 pence to 3,969 after reports in the Financial Times suggested Vale putative 85 bln usd takeover bid was on the brink of collapse last night after a major shareholder in the Anglo-Swiss miner refused to agree to the terms of the offer.

London Stock Exchange shares fell back 81 pence to 1,384 as Morgan Stanley cut its rating to 'underweight' from 'equal-weight' as it sees downside risk from potential sellers. And Royal & Sun Alliance shares shed 6.3 pence at 136.0 as Cheuvreux downgraded the group to 'underperform' from 'outperform' following yesterday's full-year results from the composite insurer.

But RSA's peer Aviva was one of the few blue chip gainers today, adding 6 pence at 616 after reporting a 1 pct rise in full-year pretax operating profit and saying it remained positive about its UK outlook in 2008. Merrill Lynch described the results as "generally strong", while keeping its 'neutral' rating on the stock.

Also on the upside, a positive trading statement helped Whitbread top the FTSE 100 riser's board, up 86 pence to 1,312 with Deutsche Bank, Numis Securities and Investec Securities all reiterating 'buy' stances on the group. Whitbread said 50-week continuing like-for-like sales across its estate increased 5.7 pct, with total sales up 11.3 pct.

And pubs operator Enterprise Inns jumped 3-1/2 at 428-1/4 after Morgan Stanley upped its rating to 'overweight' from 'equal-weight' on hopes the company will successfully convert into a Real Estate Investment Trust.

Turning to the second line, results news also dominated. On the downside, CSR lost nearly a quarter of its value, with its shares down 101-3/4 pence to 324-1/4 after the group warned that first-half revenues for 2008 will be broadly flat as it announced a rise in fourth-quarter operating profits. Sentiment in the midcap chip maker was also knocked by news its finance director is stepping down from the board. Landsbanki placed its 'buy' rating for CSR under downwards review noting the group's weak guidance.

Also losing ground was BBA Aviation, down 9 pence at 188 as news of softer US fuel volumes in the first few weeks of the current financial year offset a 58 pct higher full-year 2007 pretax profit Panmure Gordon reiterated its 'sell' stance on the group.

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Filtrona also fell back after results today, losing 25 pence at 191-1/2, as did Cattles, down 33-1/4 pence at 250-3/4 having reversed earlier gains affected by the weak mid cap trend in the afternoon.

Among the mid cap gainers, Spirent Communications topped the FTSE 250 leaders board, up 3-3/4 pence at 59-1/4 as the telecom equipment testing company reported a 124 pct rise in 2007 profits, ahead of analyst expectations, and said the outlook for 2008 was "encouraging".

Citigroup said the results show the success of Ed Bramson and his cost cutting regime which has delivered 29 mln stg of cost savings.

Elsewhere, pleasing results also helped National Express shares take on 33 pence at 1,156. The bus and train operator said strong passenger growth in all its divisions, particularly UK rail, helped it notch up a 13 pct rise in pretax profits before exceptionals to 177 mln stg for 2007.

But away from results, Drax Group was the top FTSE 250 riser, adding 38 pence at 579-1/2 on vague bid speculation, with traders noting talk Centrica could be eyeing the firm. However the rumours also suggested that Centrica could be looking at Drax's power stations peer British Energy.

UK Diary of Event:
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UK Small Cap Report:
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Paris shares close lower as oil, euro hit record highs; SocGen soars

The CAC-40 index closed down 2.08 pct or 103.59 points at 4,865.23. Thirty-eight CAC-40 stocks closed lower and two closed higher. The SBF-120 index closed down 2.08 pct or 74.77 points at 3,526.56.

The euro traded at record highs against the dollar, last quoted at 1.5185 usd, compared to 1.5101 at midday. Societe Generale rose 1.88 pct or 1.30 eur to 70.30, with traders citing market rumours that BNP Paribas is set to offer 1.2 of its own shares plus 18 eur for every Societe Generale share.

BNP shares fell 4.01 pct or 2.56 eur to 61.36.

Drinks group Pernod Ricard was the day's only other blue-chip gainer, closing up 2.02 pct or 1.43 eur to 72.37 after reporting better-than-expected first-half results.

The maker of Havana Club rum and Chivas scotch unveiled a 17.7 pct increase in first-half net profit to 588 mln eur and raised its guidance for operating profit.

Sentiment was hurt by figures released before the market open showing that France's February consumer confidence indicator slipped to -35, its lowest level since 1987. Economists had expected the figure to improve slightly to -33.5 after January's previous low of -35.

Axa was among the top fallers in the CAC-40, down 3.15 pct or 0.75 eur at 23.09 as investors remained unmoved by the insurer's in-line earnings and chose to rake in profits from the share's recent outperformance.

Construction group Vinci fell 2.3 pct or 1.09 eur to 46.21 as last night's strong figures also failed to soothe market jitters. Elsewhere among fallers, EADS was hit by concerns over the weakening dollar, shedding 4.04 pct or 0.76 eur to 18.04.

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German shares close lower, tracking Wall Street, burdened by strong euro

The DAX lost 135.33 points, or 1.93 pct, to 6,862.52 after trading between a low of 6,849.59 and a high of 6,995.39. The MDAX was down 208.19 points, or 2.21 pct, at 9,222.32 while the TecDAX closed lower 14.52 points, or 1.78 pct, at 802.17.

DAX futures were lower 105.00 points, or 1.50 pct, at 6,887.00 while bund futures rose 0.78, or 0.68 pct, to 116.13. The euro was at 1.5182 usd compared with 1.5100 usd in London midday deals.

Leading German blue chips lower, MAN lost 4.81 eur or 5.14 pct to 88.78. Bayer lost 2.52 eur or 4.68 pct to 51.55 after the pharma and chemicals giant released fourth-quarter figures this morning which included an EBITDA that missed analysts' expectations on sales which were just shy of forecasts.

Deutsche Boerse slipped 5.23 eur or 4.67 pct to 106.79, which dealers largely credit to technical trading reasons after the stock recently faltered at an important resistance level at 119.75 eur per share. Siemens lost 3.64 eur or 3.95 pct to 88.43. Hypo Real Estate fell 0.77 eur or 3.83 pct to 19.33, correcting from recent gains.

Deutsche Telekom was down 0.38 eur or 2.94 pct at 12.54, erasing earlier gains today after the telecommunications giant released solid fourth-quarter results, partly above consensus, but failed to impress investors as analysts pointed out that the company's 2008 outlook did not include any surprises.

At the other end of the DAX, Linde was the only DAX stock in positive territory, adding 0.28 eur or 0.11 0.31 to 89.52, after the industrial gas giant released full-year figures which traders said came in higher than expected.

Allianz shares lost 0.30 eur or 0.25 pct to 121.35, but were also outperforming the market, after traders said the stock was added to Goldman's 'conviction buy' list.

MDAX-listed Tognum lost 1.05 eur or 5.85 pct to 16.91, as traders said the stock suffered from profit taking after releasing strong full-year figures today. Heidelbergcement won 1.06 eur or 1.00 pct to 106.88 as the strongest gainer of the index.

Over on the TecDAX, Morphosys led shares lower, down 2.83 eur or 6.10 pct at 43.60 after strong numbers released today by the biotech company were already calculated into the stock price, according to traders, and the company's 2008 outlook disappointed.

At the other end, Pfeiffer Vacuum was up 1.50 eur or 2.61 pct at 59.06.

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Amsterdam shares close lower as Wall Street dips; ING leads decliners

The AEX closed down 9.67 points, or 2.09 pct, at 452.91 after opening at 460.25 and trading in the range 452.74-461.13. Government bonds traded higher, while the euro stood at 1.5185 usd versus 1.5112 usd late yesterday.

ING fell 3.88 pct to 22.79 as it extended yesterday's losses, while peer Aegon shed 1.07 pct at 10.20 eur. Belgo-Dutch financial Fortis also closed lower, down 0.60 pct at 14.94, outperforming its peers as the pro forma underlying net profit of the ABN Amro operations it acquired last year pleased investors.

Publisher Wolters Kluwer fell 3.49 pct at 17.16 eur as investors continued to sell out of the stock after yesterday's disappointing full-year earnings prompted ratings downgrades at Rabo Securities and Theodoor Gilissen.

Peer Reed Elsevier fell 2.30 pct at 12.34 eur. On the midcap, Aalberts slumped 8.09 pct at 12.96 eur after the company reported full-year results that met analysts' expectations, but issued a cautious outlook on 2008.

LogicaCMG was down 7.86 pct at 1.29 eur amid reports it wants to renegotiate the terms of a 510 mln eur, 10-year IT outsourcing contract with EDP Energias de Portugal.

ASMI fell 2.74 pct to 13.51 eur as activist shareholder Fursa said it still wants to talk with ASMI's supervisory board about its alternative business plans for the group as it expressed disappointment at the company's fourth-quarter results.

Corio closed 1.29 pct at 61.85 ahead of its earnings statement due tonight after market close. There were no blue chip gainers, with takeover target Corporate Express topping the index as it closed flat at 7.85 eur. Brewer Heineken also outperformed, declining 0.49 pct at 36.34 eur after peer InBev posted a forecast-beating rise in full-year net profit. Midcap property stock Wereldhave gained 3.31 pct at 80.00 eur.

CSM closed up 1.71 pct at 20.83 eur after yesterday's full-year results showed CSM can withstand higher raw material prices, analysts said. Tele Atlas added 1.24 pct to 28.50 eur as its benign fourth-quarter results pointed to TomTom's 30-eur-per-share offer succeeding.

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