UK/Euro Financial Market Daily Evening Briefing 29-02-2008

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London shares close lower with banks under pressure as NY slips

At the close, the FTSE 100 index was off 81.4 points at 5,884.3, having reversed from a peak of 5,986.2, and recovered from a low of 5,859.3, with the FTSE 250 index down 162.9 points at 10,067.9. Volume was fair, with 2.7 bln shares changing hands in 798,906 deals.

In the US, stocks fell in early trading as disappointing earnings from American International Group and Dell underscored the challenging economic environment in which companies now operate.

By London's close, the Dow Jones Industrial Average had slid 193.8 points to 12,388.4, with the Nasdaq Composite index 37.11 points weaker at 2,294.46, and the S&P 500 index 21.20 points lighter at 1,346.5.

Turning to UK equities, Mic Mills from tradindex.com pointed to banks being the biggest story of the day. HBOS was the worst off, down 31-1/2 at 603-1/2, followed by Barclays, 23-1/4 weaker at 477-1/4, and with Royal Bank of Scotland closing 17 lower at 385. HSBC, slated to update the market with results on Monday, ending 14 lighter at 766-1/4.

But Yell headed the FTSE 100 loserboard, extending yesterday's losses -- which were triggered as US directories peer RH Donnelly lowered its outlook for 2008 -- on a broker downgrade. Earlier, Bear Stearns cut its rating to 'peer perform' from 'outperform'. While it believes the recent share price sell-off is overdone, it sees no stock re-rating in the near term given continued negative market sentiment.

The broker said the market is clearly concerned with Yell's exposure to three territories with significant economic downside risk - the US, which represents 45 pct of Yell's revenues, the UK (33 pct) and Spain (15 pct). Yell's shares finished the session 23-1/4 weaker at 219-1/4. Elsewhere among the blue-chip fallers, outsourcing specialist Capita shed 26-1/2 to 656, reflecting the weaker market and profit-taking following its full-year results.

Earlier, the company posted a 19 pct increase in underlying profit on ongoing strong demand for outsourcing and said it has seen good trading conditions since the start of the year. In reaction, both Deutsche Bank and Landsbanki reiterated their 'buy' recommendations.

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Meanwhile, WPP slipped 15 pence to 597, also tracking the weak wider market, after unveiling its full-year results earlier.

The world's second-largest advertising and marketing group said it is confident of stronger growth in 2008 despite the economic gloom as it reported 5 pct growth in organic revenue for 2007, in line with expectations.

In reaction, Merrill Lynch and Numis Securities reiterated 'buy' ratings, with target of 760 pence and 739 pence, respectively.

Elsewhere, GlaxoSmithKline dropped 26 to close at 1,103-1/2 after it announced it is halting the development of its Dacart malaria drug and is recalling its Lapdap malaria drug following results of Phase II trials that show the drugs can lead to anaemia.

A broker downgrade helped send shares in Diageo lower, off 25 pence at 1,034-1/2, with Goldman Sachs cutting its stance on the drinks giant to 'neutral' from 'buy'.

Turning to the upside, Rentokil Initial was the top gainer, clawing back some of yesterday's profit-warning induced losses, to end the session 2.9 pence firmer at 83.4.

Claiming second place on the risers' board was Resolution, which closed the session 20-1/2 ahead at 690. After months of uncertainty and delays to the company's takeover by Pearl, the companies issued a joint statement saying they expect issues to be resolved "quickly and positively".

A broker upgrade provided the impetus for shares in Schroders, up 18 at 958-1/2, with Morgan Stanley upgrading its stance to 'equal-weight' from 'underweight'.

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Elsewhere, AMEC climbed 10 to 775, as midcap peer Expro International said it has received a bid proposal from an unnamed party, while cautioning the offer is very preliminary and may or may not lead to an offer for the company.

Expro was the top gainer on the second tier at the close, shooting up nearly 36 pct or 332-1/2 to 1,259, as fellow midcaps Hunting and Petrofac, in reaction to the news, ended 49 higher at 775, and 7-1/2 firmer at 553, respectively.

On the downside, Helphire Group was the biggest faller, down 118-1/2 at 172 after the accident management assistance company said first-half pretax profit was up, but it sees a short-term margin squeeze.

Landsbanki kept its 'hold' rating on the stock but put its full-year forecasts under review, saying it thinks the adjusted pretax profit is light at 21.8 mln stg compared to 25 mln previously.

Finally, Cattles lost 16-3/4 to 234 after Dresdner Kleinwort cut its rating to 'hold' from 'add' and lowered its target to 355 pence from 385 following full-year results yesterday.

The broker said net loan growth of 37.8 pct at the company's consumer credit division Welcome gives an indication of where the future risk profile may lie if the UK consumer is pressured over the next 12 months.

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Paris shares close lower as financial sector weighs

The CAC-40 index closed down 1.53 pct or 74.57 points at 4,790.66. 35 CAC 40 stocks closed lower and five closed higher. The SBF-120 index closed down 1.51 pct or 53.13 points at 3,473.43.

 The euro traded at record highs against the dollar, last quoted at 1.5179 usd compared to 1.5184 at midday. Accor was the day's steepest faller, closing down 4.47 pct or 2.21 eur at 47.24. The hotel chain operator continued to suffer from recent analyst downgrades following the company's full-year earnings report.

Dexia lost 1.88 pct or 0.30 eur to 15.66 as an impressive set of fourth-quarter earnings did nothing to ease concerns over the credit market turmoil.

Elsewhere among financials, insurance giant Axa fell 2.64 pct or 0.61 eur to 22.48, Credit Agricole shed 1.9 pct or 0.35 eur to 18.04 and BNP Paribas gave up 2.92 pct or 1.79 eur to 59.57.

 Societe Generale swam against the tide, rising 1.14 pct or 0.80 eur to 71.10 amid ongoing speculation of a takeover bid from domestic rival BNP Paribas.

Media conglomerate Vivendi shed 1.61 pct or 0.43 eur to 26.22 as lower than expected guidance outweighed satisfactory earnings for 2007. Elsewhere, the declining dollar continued to weigh on sentiment, driving EADS down a further 3.38 pct or 0.61 eur to 17.43. STMicroelectronics, also deemed to be highly exposed to the dollar, fell 3.38 pct or 0.28 eur to 8.00.

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German shares close lower as market talk on more sub-prime losses weighs

The DAX lost 114.39 points, or 1.93 pct, to 6,748.13 after trading between a low of 6,698.55 and a high of 6,864.69.The MDAX was down 128.78 points, or 1.67 pct, at 9,093.54 while the TecDAX closed 18.14 points lower, or 2.26 pct, at 784.03.

DAX futures were 117.00 points lower, or 1.70 pct, at 6,769.00 while bund futures rose 0.95, or 0.82 pct, to 117.08. The euro was at 1.5192 usd compared with 1.5176 usd in London afternoon deals. Leading German blue chips lower, Continental lost 2.55 eur or 3.79 pct at 64.72.

Siemens fell 3.01 eur or 3.40 pct at 85.42. The stock was removed from Merrill Lynch's European Capital Goods, Aerospace and Defence most preferred stock list for March. Henkel fell 1.02 eur or 3.37 pct at 29.21, as traders said news about its expected sale of a 25 pct stake in Ecolab Inc, worth 3.7 bln usd, had slowed.

Allianz lost 3.85 eur or 3.17 pct to 117.50 after peer American International Group Inc, the largest insurer in the US, lost more than 5 bln usd in the fourth quarter as bad credit ate into its investments. Infineon was one of only three DAX shares in positive territory, up 0.03 eur or 0.56 pct at 5.36.

Deutsche Telekom was 0.03 eur or 0.24 pct higher at 12.75 after Citigroup raised its stance to 'hold' from 'sell' and increased its price target to 13 eur per share from 12.50, saying it believes the telecoms group's increasingly solid performance in recent quarters is being largely ignored by the market.

Volkswagen was also higher, up 0.04 eur or 0.03 pct at 149.99 as Europe's largest car makers this afternoon released a solid set of full-year earnings and an optimistic outlook, while traders noted that large numbers of put options are due to expire on the stock, which prevented the share from breaking through the 150 eur barrier.

Volkswagen's dividend hike to 1.80 eur per share from 1.25 eur was more than expected, but traders said the share still offers a very small yield. Over on the MDAX, Arcandor was the weakest share on its index, down 0.69 eur or 5.58 pct at 11.67. At the other end, IKB was up 0.16 eur or 2.94 pct at 5.61, after majority stake-holder KfW Bankengruppe said there are several potential buyers interested in acquiring the bank.

Nordex was the weakest TecDAX stock, down 1.58 eur or 6.21 pct at 23.86, while QSC added 0.15 eur or 7.50 pct at 2.15 as the index's sharpest gainer fuelled by M&A speculation concerning a possible takeover of the DSL service provider by private equity firm Apax Partners.

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Amsterdam shares close down still weighed by financials, Wall St

The AEX closed down 6.38 points, or 1.41 pct, to 446.53 after trading in the range 443.85-452.88. Government bonds traded broadly higher, while the euro stood at 1.5186 usd, compared with 1.5185 usd late yesterday.

TomTom led AEX decliners, falling 4.82 pct to 31.20. TNT turned 3.26 pct lower to 26.11 eur on on news the company has suspended workplace talks with unions over its proposed wage freeze to restrict job losses. Another strong loser was Akzo Nobel, down 2.54 pct to 48.70.

Heavyweight financials weighed most however, with ING was down 2.37 pct to 22.25 eur, Aegon was off 2.35 pct at 9.96 eur, and Fortis lost 1.87 pct to 14.66.

Amid tech related issues, ASML fell 1.95 pct to 16.09 and Philps shed 0.80 pct to 25.98 after the company said it was changing accounting methods and that LG Display will no longer impact its profit and loss sheet. Midcapper ASMI slipped 3.77 pct to 13.0 and LogicaCMG was down 4.65 pct at 1.23 eur.

Among oils, SBM Offshore lost 0.09 pct to 21.40 and Royal Dutch Shell went 1.04 pct lower to 23.71. Midcapper Fugro was up 1.46 pct at 50.15. Local issue Wavin sank 12.57 pct to 7.65 eur after releasing its full-year results.

Arcadis was down 1.48 pct at 40.69 eur ahead of full-year results on Monday, overshadowing news the company won a Dutch rail maintenance contract as a partner in a joint venture with Imtech. Imtech fell 1.13 pct to 15.77 eur after initially rising on news its joint venture ASSET Rail won a 90 mln eur rail maintenance contract from the Dutch railway network authority.

Heineken was one of the few AEX gainer, rising 2.89 pct to 37.31 eur, followed by publishers. Reed Elservier and Wolters Kluwer were up 0.24 pct at 12.37 and 0.12 pct at 17.18 respectively. Nutreco was up 1.33 pct at 47.11.

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