UK/Euro Financial Market Daily Evening Briefing 28-06-2007

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London shares closed firmer near day's high;NY flat;Commodity stocks gain

UK blue chips closed firmer but off highs as Wall Street remained flat ahead of tonight's FOMC rate decision, with commodity stocks the major gainers in the blue chips.

At close, the FTSE 100 index was 43.7 points firmer at 6,571.3 near the day's high of 6,575.5, with all the broader FTSE indices also rallying strongly. The FTSE 250 index was 127.3 points ahead at 11,519.2.

Volume was solid, with 3.33 bln shares changing hands in 529,692 deals, with Vodafone accounting for half a billion of these trades.

By London's close, Wall Street was flat ahead of the Federal Reserve's interest rate decision, and investors were on guard for whatever comments policymakers might make about the economy.

The Dow Jones industrial average was 3.3 lower at 13,424.5, while the Standard & Poor's 500 index was flat at 1,506.34. The Nasdaq Composite index was up 5.41 at 2,610.65.

The Fed -- widely expected to keep the benchmark rate steady at 5.25 percent after its two-day meeting ends -- has stated recently that the economy is on track to recover from a weak first quarter despite difficulties in the housing market. Investors want to get any clues on the pace of inflation, which central bankers believe remains a paramount concern.

Ahead of the Fed, the market received a fresh snapshot on the state of the nation's labour market and revised view on how well the economy fared in the first quarter.

The number of people claiming unemployment benefit for the first time fell 13,000 to 313,000 in the latest week from a revised 326,000 in the prior week. Economists had been expecting a smaller decline to 318,000.

Meanwhile, economic growth in the first quarter was revised upward to 0.7 pct from a previous estimate of 0.6 pct, in line with economist forecasts.

Core PCE prices excluding food and energy, the Fed's favourite inflation index, also got a two tenths upward revision to 2.4 pct. Headline PCE inflation was 3.5 pct.

In London, dealers kept an eye on the Downing Street reshuffle, with Alistair Darling appointed to the key post of Chancellor.

The final line-up contains many veterans of Tony Blair's last government with David Miliband handed the plum job of Foreign Secretary and Alan Johnson becoming Health Secretary after the resignation of Patricia Hewitt last night.

In other news, investors shrugged off the latest monthly survey from Nationwide, which showed house prices jumped by 1.1 pct in June from May, despite the very poor weather. This was the biggest rise since last December's 1.2 pct increase and more than double May's 0.5 pct rise, as well as being way above analysts' forecasts for a much more moderate 0.4 pct gain.

Turning to the blue chip upside, heavyweight commodity issues rallied with commodity prices after recent falls.

BHP Billiton firmed 41 pence at 1,386 and Rio Tinto added 91 pence at 3,781.

Oil stocks got a lift after rising yesterday due to renewed concerns of a gasoline shortfall in the US as the world's top consumer's peak demand driving season gets underway.

Royal Dutch Shell was 52 higher at 2,060 after Morgan Stanley raised its rating for the oil giant to 'equal weight' from 'underweight' and upped its price target to 2,300 pence from 2,025.

Morgan Stanley said it has become progressively more positive on the "super-majors", although historically it has been negative.

It thinks the large caps now represent the cheapest access to energy in the world following four years of relentless de-rating.

Its peers BG Group was 21 firmer at 813 and BP was up 11-1/2 at 599.

Vodafone again put in another strong performance in heavy trade amid talk it could win a distribution deal with Apple. Its shares were 2.4 pence higher at 166.25.

And, continuing M&A issues recaptured the imagination with Whitbread back in focus, taking on 31 to 1,770 as investors piled back into the stock amid mounting speculation several private equity groups have the leisure group in their sights.

Among those mooted to be interested are Starwood Capital, which is thought to be keen to acquire the group's Premier Travel Inn business.

Whitbread has been seen as a prime target following recent disposals, including its John Lloyd unit, and on account of its hefty property portfolio.

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Elsewhere, J Sainsbury was a feature, up 6-1/2 to 583-3/4 following news property entrepreneur Robert Tchenguiz has doubled his stake in the UK supermarket operator to 11 pct from 5 pct.

The move sparked speculation that Delta Two, the Qatari royal investment vehicle that recently bought a 25 pct stake in the company, could launch a bid for the company.

According to press reports, Tchenguiz is not working with Delta Two and has not held discussions with the Qataris.

Its peer Morrison was also up 4-1/2 at 300-1/2.

Property stocks also got a lift from the M&A hysteria with Land Securities up 19 at 1,746, British Land adding 22 at 1,362 and Liberty International taking on 17 at 1,173.

Dealers said the shares were due a bounce following recent weakness and amid talk the sector is still in a consolidatory mood.

Experian continued its recent rally, taking on a further 20-1/2 to 626-1/2 following its recent acquisition of a 65 pct stake in Serasa.

On the downside, Diageo shed 27 pence at 1,038 after the drinks group's latest trading update came in just in line with expectations.

The firm reiterated its guidance for 8 pct full-year organic operating profit growth, adding it expects total organic net sales growth to be higher than in the first half.

In reaction, Collins Stewart downgraded the group to 'hold' from 'buy'.

The broker added that some issues will act as a weight on Diageo, the most important of which is the benign statement by the group regarding a slowdown in market growth in the US.

Otherwise among blue chip fallers, profit-taking was the order of the day -- AstraZeneca, a big gainer yesterday, lost 8 pence at 2,651 and BAE Systems was off 7-1/2 at 403.

On the second line, Domestic & General shares topped the FTSE 250 risers board, up 134 pence or 10.92 pct to 1,361 after the provider of extended warranty and central heating cover said it has received other approaches from parties which may or may not lead to an offer for the company.

In a trading update, the company said a further announcement on the approaches will be made as and when appropriate.

Domestic & General also said trading in its core warranty business remains strong.

And Charter was 73 higher at 1,093 after Panmure Gordon raised its price target to 1,258 pence from 1,132 and reiterated its 'buy' stance after Charter's AGM statement on Tuesday.

Rank Group shares also pushed higher following a trading update today, taking on 6-3/4 pence at 187-1/4.

The casino operator said group like-for-like revenue rose 5 pct in the first 25 weeks to June 24. At its Mecca Bingo clubs, like-for-like revenue rose 1 pct for the period, though admissions fell 5 pct.

Rank warned the smoking ban in England and the impact of changes to casino taxation are likely to hurt its second-half profits.

In reaction, Panmure Gordon said the initial trading news from Rank Group after the start of a smoking ban in Wales is encouraging, as it had hoped, with revenues down 5 pct, albeit only from a small number of clubs and for a short period.

Among the mid cap fallers, HMV Group was 4 pence lower at 118 after results were in line with consensus with Seymour Pierce retaining its 'hold' stance.

HMV, the troubled music, DVD and books retailer, reported an expected 51 pct slump in full year underlying profit.

But the group, which trades as HMV and Waterstone's, reported improved trading in its new financial year, reflecting weak comparatives with last year when sales were impacted by the World Cup and very hot weather.

Elsewhere, easyJet lost 11 at 516-1/2 after Morgan Stanley cut the group's target to 750 pence from 800 pence and issued a cautious note on the airlines sector.

And Sports Direct shed 4 pence at 183-1/2 after Panmure Gordon cut its target to 170 pence from 180 and reiterated its 'sell' recommendation today.

Panmure Gordon said it expects Sports Direct's sales will have suffered further from the poor June weather and it is therefore reducing its forecasts and its price target again.

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Frankfurt

German shares close higher led up by Linde, Postbank

German shares closed higher after three days of straight losses, buoyed by positive US economic data and with Linde and eutsche Postbank making strong gains.

The DAX closed 120.13 points or 1.54 pct higher at 7,921.36, having traded etween a low of 7,847.44 and a high of 7,923.59 today.

The MDAX gained 204.87 points or 1.90 pct to 10,962.59, while the TecDAX advanced 17.94 points or 1.98 pct to 923.88.

DAX futures were 53.00 points or 0.67 pct higher at 7,998.00, while bund futures were unchanged at 110.86.

The euro traded at 1.3467 usd, against 1.3463 usd in afternoon London trade.

Linde led blue chips higher after it rose sharply in late afternoon deals, rising 3.68 eur or 4.36 pct to 88.00, as traders pointed to rumours saying Goldman Sachs is to raise its rating for the chemical company.

Deutsche Postbank followed, adding 2.44 eur or 3.96 pct to 64.00, after old speculation reemerged that it may be a takeover target of peer Commerzbank.

Traders pointed to an interview with Commerzbank management board member Wolfgang Hartmann, in which he said that Postbank would make an excellent addition to his bank.

A Deutsche Post spokeswoman said, however, that her company does not plan to cut its majority stake of 50 pct plus one share in Postbank.

MAN gained 3.44 eur or 3.40 pct at 104.68, rebounding from recent declines.

Henkel rose 1.14 eur or 3.04 pct at 38.65 after Morgan Stanley issued a bullish note on the household goods manufacturer, reaffirming its 'overweight' stance and calling it the most compelling investment in Europe at the moment.

Continental was up 2.73 eur or 2.72 pct to 103.10.

At bottom end, RWE underperformed the market as the weakest stock of the day, gaining 0.13 eur or 0.17 pct to 77.40.

Over on the MDAX, Norddeutsche Affinerie rose to the top, adding 1.39 eur or 4.52 pct to 32.15.

Meanwhile, at the other end, ProSieben lost 0.35 eur or 1.19 pct to 29.15.

TecDAX-listed Solarworld gained 3.49 eur or 5.41 pct to 68.05, while Jenoptik dropped 0.06 eur or 0.82 pct to 7.28

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Paris shares close higher after 5-day consolidation; Capgemini leads CAC UPDATE

PARIS - Share prices closed sharply higher as investors resumed bargain-hunting after five straight falling sessions, buoyed by yesterday's gains on Wall Street, with Capgemini leading bluechip climbers amid takeover talk and positive sentiment towards IT services groups, market sources said.

The CAC-40 index finished up 64.64 points or 1.09 pct at 6,006.31.

Volume for the day on the CAC-40 was 6.7 bln eur.

Among CAC-40 stocks, 34 closed higher and 6 closed lower.

On the Matif, July CAC-40 futures were trading up 62.0 or 1.04 pct at 6,010.5.

On the broader indices, the SBF-80 index closed up 88.39 or 1.24 pct at 7,215.60 and the SBF-120 ended up 48.04 or 1.11 pct at 4,380.30.

The euro was at 1.3469 usd against 1.3464 late yesterday.

US stocks made strong gains overnight although they were flattish in early trade today as investors awaited the Federal Reserve's decision on interest rates, with the focus on comments policymakers might make about the economy.

In Paris, investors reacted to the corporate newsflow as well as some M&A talk to carry out buying ahead of this evening's statement from the Fed.

Capgemini starred on the CAC-40, adding 2.37 eur or 4.61 pct to 53.78 on the back of rumours that India's Infosys is mulling a takeover bid, as well as general enthusiasm for IT stocks.

But a Paris-based dealer was sceptical, arguing that Capgemini's surge was probably more to do with strong figures from Oracle in the US, and the third-quarter earnings announcement due from Accenture today.

Outside the CAC-40, IT services firm Alten jumped 1.46 or 5.25 pct to 29.26.

In addition to the overall positive sentiment towards the sector today, investors are continuing to react favourably to last Friday's announcement that chairman Simon Azoulay has raised his stake in the company.

Oil stocks also drove today's rally, lifted by climbing crude prices, with New York futures trading at 70 usd per barrel for the first time since last September in early trading.

Oil major Total rose 1.86 or 3.24 pct to 59.32 in volume of 787 mln eur that drove the CAC upwards.

Tube maker Vallourec was close behind, adding 1.86 or 3.21 pct to 241.00.

Other bluechips in positive territory included Alstom, which climbed 3.81 or 3.19 pct to 123.09.

The engineering group was boosted by yesterday's news that French rail operator SNCF has confirmed a 2.1 bln eur order for 80 high-speed TGV trains.

Tyre-maker Michelin gained 2.29 or 2.29 pct to 102.34, helped by an earnings upgrade from Japanese rival Bridgestone.

After market close yesterday, Bridgestone announced it expects to book net profit of 106 bln yen this year, up from an earlier estimate of 90 bln yen, saying the upgrade was due to the weakness of the yen and an improved US performance.

Still in the auto sector, Renault recovered from profit-taking in recent days to rise 2.21 or 1.90 pct to 118.51, supported by an upgrade to 'buy' from 'neutral' by Goldman Sachs, with the broker also upping its price target to 150 eur from 88 on valuation grounds.

In a note this morning, Goldman Sachs analysts said they believe Renault chief executive Carlos Ghosn will exceed his Golden Commitment of a 6 pct operating margin in 2009, forecasting a margin of 7 pct with a peak of 8 pct in 2010.

Elsewhere, yacht builder Rodriguez Group recovered from an early drop following its first-half results to climb 2.30 or 6.10 pct to 40.00 by the close.

But the market then warmed to the fact Rodriguez maintained its full-year guidance for 300 mln eur in new yacht sales and a "sharp increase" in 2007 profits, as well as upbeat comments from executives about the group's new strategy and the outlook for the yacht market.

Another strong riser was internet services provider Iliad, up 1.96 or 2.65 pct at 75.90 on the news it has launched a television service for its HD set-top box, allowing clients to broadcast their own video images.

Among the few fallers, Groupe Partouche shed 0.45 or 2.79 pct to 15.70 after the casino operator announced a 64.9 pct plunge in net profit in its first half to April, hit by a challenging base period and as slot machine sales suffered from new French casino entry regulations.

In a statement, Partouche warned "persistent gloom" will also hit second-half operating earnings and announced it is studying the possibility of taking minority stakes in foreign groups.

Financial stocks also remained prone to worries about interest rates and weakness in the subprime segment of the housing market.

Societe Generale gave up 0.57 or 0.42 pct to 136.75 and Dexia fell 0.09 or 0.39 pct to 23.27.

Air France-KLM, meanwhile, shed 0.24 or 0.70 pct to 34.17 in reaction to rising oil prices.

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Danish shares rebound to close higher, led up by Vestas Wind Systems

Share prices closed higher in a rebound from recent losses, led up by Vestas Wind Systems as rising crude oil prices once again moved focus to companies in the renewable energy sector.

The OMXC20 index closed 3.68 points higher at 478.62 and the OMXCB Benchmark index rose 3.76 points to 462.44.

The OMXC All Share index closed 3.66 points higher at 471.13 on turnover of 3.81 bln dkr.

Vestas Wind Systems closed 9 dkr higher at 361.5, recovering from falls earlier in the week on worries regarding the gearbox problems which have hit the group's offshore wind turbines.

Rising crude oil prices have renewed interest in alternative energy stocks such as Vestas, said Nordea Bank, which is positive to the windturbine maker.

Danske Bank said one of Vestas' major customers in China, Datang Corporation, is preparing large investments in Inner Mongolia. Together with Korea Electric Power Corporation, Datang is about to invest 18 bln dkr in five wind parks.

GN Store Nord added 1.5 to 64, extending gains yesterday after the prospects of a sale of its hearing aid business Resound to Switzerland's Phonak Holding were deemed stronger after Phonak chief executive Valentin Chapero said the blocked deal may be carried through if Resound's German activities are left out.

William Demant Holding fell 2 to 544.

ALK-Abello B rose 16 to 1,144 after Jyske Bank advised investors to buy the stock ahead of 'an interesting second half year'. The bank sees a 66 pct upside potential and an 1,873 dkr target.

Jyske expects a very positive newsflow, including a more specific forecast for the Grazax grass pollen allergy treatment and good news about price negotiations in France, Italy and Spain.

Genmab was up 5.5 at 358. The pharmaceuticals group said it will issue 826,045 warrants with an estimated total value of around 120 mln dkr to board members, managers and employees.

Lundbeck has entered an agreement with US-based Gene Logic for the latter to seek alternative development possibilities for drugs that have previously been discontinued in clinical trials by Lundbeck.

The drugs were discontinued by Lundbeck for non-safety related reasons, Gene Logic said in confirming the agreement.

Biotie Therapies said it has withdrawn the UK national marketing authorisation application on nalmefene in its alcoholism indication to enable a centralised EU-wide registration procedure in due course.

Biotie said on May 23 that it and Lundbeck have jointly decided to seek marketing authorisation simultaneously in all 27 EU member states via the centralized procedure, to maximise nalmefene's potential in the treatment of alcoholism.

To this end, Biotie added, Lundbeck plans to further strengthen the existing nalmefene registration dossier in its alcoholism indication with additional phase III clinical studies, which are expected to start in 2008.

Coloplast fell 1.5 to 445.5 and Novo Nordisk B shed 3 to 583.

AP Moller-Maersk A added 800 to 65,400 and the B- shares rose 800 to 66,400. The group's Maersk Line is increasing its bunker surcharge between Mediterranean ports and US and Canada.

DS Norden was up 6 at 350. The group raised its full-year EBIT forecast to 450-480 mln usd from 430-460 mln usd previously following the sale of a bulk carrier. Its new EBIT forecast includes profits of 141 mln usd from the sale of vessels, compared with 120 mln usd previously.

DS Torm rose 5.25 to 208.75 and DSV added 1.75 to 108.75.

Sydbank was 5.5 higher at 260.5. Fionia Bank said the stock, which has fallen by over 17 pct since May 23, is oversold.

Danske Bank rose 1 to 23, and TrygVesta rose 3 to 431, while Topdanmark shed 3 to 942.

FLSmidth was up 6.5 at 429. SparNord Bank recommended investors to buy the stock today following Orascom Construction Industries' announcement yesterday that it has signed an agreement with FLSmidth for a new cement factory worth 360 mln usd for Syria. The Danish company has not confirmed the report.

Carlsberg B added 2 to 649, while Novozymes was unchanged at 618 and Danisco shed 1 to 412.5.

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