UK/Euro Financial Market Daily Evening Briefing 30-08-2007

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London shares close higher; BG gains; Wall Street turns positive

UK blue chips closed higher for the eighth session of the last nine, with energy companies some of the best performers, and the market was boosted by Wall Street turning positive after a weak start.
   
At the close, the FTSE 100 index was 79.8 points firmer at 6,212, near the session high of 6,220.8, and up from the session low of 6,122.5. The FTSE 250 index closed up 207.6 points at 11,099.5.
   
Volume was average, with 2.5 bln shares having changed hands in 529,254  deals.
  
The Dow Jones Industrial Average was 3 points higher at 13,292 when the London market was closing, having been down more than 100 points in the opening minutes of trading. Some investors are growing more hopeful of the Fed cutting the key funds rate at its meeting next month.
   
US economic news today was mixed. Initial claims for US state unemployment rose 9,000 to 334,000 in the week ended August 25, its highest level in more than four months, the Labor Department reported. This topped analysts' expectations in a Market News International survey that had centred on 320,000 new claims, within a range of 310,000 to 330,000.
   
However, the US economy grew at an annualised rate of 4 pct in the second quarter, said the Commerce Department. The newly discovered strength in Q2 output owes to improved trade and nonresidential investment in structures.
   
But the subprime mortgage crisis continues to be the single most important factor affecting confidence in the US markets.
   
Financial stocks were again under pressure after Lehman Brothers cut its price and EPS targets for Goldman Sachs, Bear Stearns, Morgan Stanley and Merrill Lynch citing recent share price volatility due to the subprime crisis.
   
"The markets are still worried about liquidity and the Central banks are still having to inject funds as there is a shortage of cash in the credit markets," said Ed Menashy, economist and strategist at Charles Stanley. "But world economies are in excellent health, and ratings are at their lowest in 15 years."
   
In London, oil stocks were still some of the best performers, despite Brent futures for October having slipped today, trading at just below 72 usd a barrel, following a surge on Wednesday due to data showing low US inventory levels.
   
BG Group closed 32 pence higher at 782, after Dresdner Kleinwort upped its rating to 'buy' from 'hold'.

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Index heavyweight BP was up 8-1/2 pence at 551, and Royal Dutch Shell ended the day 42 pence higher at 1,900.
   
Mining shares were modestly higher, on stronger base and precious metal prices. BHP Billiton closed up 38 pence at 1,428, Anglo American was 59 pence firmer at 2,771, and Xstrata gained 68 pence to close at 2,880.
   
In earnings news, Diageo was 24 pence higher at 1,042 after the world's largest spirits group reported a higher full-year underlying profit and raised its current year outlook
   
The drinks maker said it now expects organic operating profit growth in 2008 of 9 pct as against the 8 pct target it had set for 2007.
   
Reacting to the results, Merrill Lynch said it believes the improved outlook should make investors comfortable that a slowdown in the US consumer will not materially impact the Diageo group. The broker said it has a 'buy' rating on the company.
   
Citigroup, which reiterated its 'hold' rating, said a benign macro economic outlook during 2007 should be share price supportive but risks to top-line growth do exist, especially in emerging markets and the US.
   
Turning to the downside, Europe's largest electrical goods retailer, DSG International slid 2.5 pence to 154.8, making it the biggest FTSE 100 loser on the day, after investors took fright as the company warned margins at PC World had suffered.
   
Analysts at Panmure Gordon said PC World appeared to have suffered a "hardware bloodbath". It said that this, and management's caution on the consumer outlook, is likely to hold back the share price.
   
Only eight other companies closed lower. Barclays slipped 2-1/2 pence to 597-1/2.
   
Among the midcaps, Rank Group was a major riser, up 13-1/2, or 8.8 pct at 167-3/4, following better-than-expected interim results this morning.
   
The UK gaming group reported a jump in first-half pretax profits, adjusted for the recent disposals of its Hard Rock and US Holidays businesses, to 37.3 mln stg, up from 21.9 mln last year.
   
Landsbanki said the interims look good but the numbers are "largely historic", underlining that the second half is all important following the introduction of the English smoking ban from July and the loss of S21 machines from September. The broker kept its 'reduce' rating on the company.

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Amlin, the UK insurer and reinsurer, closed 18-3/4 pence up at 305-3/4 after the group delivered a better-than-expected 54 pct increase in first-half profit, helped by strong investment returns.
   
In a note out this morning, Seymour Pierce said the results were excellent. The broker added that, in the event of a benign hurricane season and with reasonably limited growth potential in a softening market, it believes the company could make a substantial return of capital to shareholders.
   
Shares in Emap pushed higher, up 48-1/2 pence at 885, following an update on its strategic review announced on July 27, indicating that, since that date, it has received further expressions of interest in all parts of the group.
   
Citigroup said given the recent credit concerns, it is encouraging that Emap talks about "further" interest, and for "all parts of the group".
   
In broker-generated news, Detica was up 7 pence at 295 after UBS upgraded the group to 'buy' from 'neutral' with a reduced target of 385 pence from 425 pence.
   
The broker cited recent underperformance which, it says, is unjustified given the business and technology consultant's robust end markets, and proven track record.
   
On the downside, Hunting fell 55 pence to close at at 700, making it the biggest midcap faller, as a 10 pct rise in pretax profits fell short of market expectations.
   
The oil services company reported pretax pre-exceptional profit of 38.9 mln stg, up from from 35.3 mln last time, while revenue dipped to 877.2 mln stg from 885.8 mln in the same period last year.

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Paris shares close sharply up; Suez leaps, Sarkozy suggests breakup of co

The CAC-40 index closed up 72.51 points or 1.31 pct at 5,592.53, with Suez adding over 5 pct. 35 stocks closed up and five were lower.
  
Suez ended up 2.07 or 5.32 pct at 41.00. The share rose in early trade after first-half net earnings of 1.9 bln eur, topping analysts' expectations after it booked a gain on the disposal of cable assets in Belgium which it had been expected to include in third-quarter figures.
   
In late trade the stock pushed higher after French president Nicolas Sarkozy suggested the group could shed its environmental activities and become a pure energy player to allow it proceed with the troubled Gaz de France merger.
   
He told employers association Medef in a speech he wants Suez to make a "strategic choice and specialise in energy" so it can proceed with its proposed merger with Gaz de France.
   
Bouygues was another sharp gainer, adding 2.05 or 3.72 pct at 57.10 ahead of first-half results due tomorrow.
   
STMicroelectronics ended up 0.40 or 3.27 pct at 12.65. Sanford Bernstein raised its stance on the stock to 'market perform'. In a note to clients, the broker said the chip sector could reach around 92 pct utilization by the end of the year, which would improve pricing and margin in the fourth quarter and at the beginning of 2008.
   
On the downside, Essilor slumped 1.39 or 3.06 pct at 44.00 as first-half results disappointed investors.
   
On the second line, Natixis surged 1.04 or 7.05 pct at 15.80 after the group announced higher-than-expected first half net profit of 1.565 bln eur and gave details of its "marginal" exposure to the US sub-prime mortgage sector.
   
Analysts at Landsbanki Kepler welcomed the news, which they said gives Natixis an "apparent better risk profile than other French banks."
   
Credit Agricole also outperformed, closing up 0.62 or 2.31 pct 27.51.  The banking group today beat analyst expectations with flat second-quarter results and a sharp rise in net banking income, and also played down its sub-prime exposure.
   
CFO Gilles de Margerie said the only area where the group can be affected is in mezzanine CDO tranches, where at-risk funds amount to 280 mln eur, or a net 91 mln eur taking into account hedging operations.
   
A Zurich-based trader said the bank itself appeared "relaxed" regarding its risk, "which is obviously the vogue issue".
   
Dexia added 0.31 or 1.59 pct at 19.83 after posting second-quarter results which showed a 34.8 pct year-on-year rise in net profit, and announcing a new 500 mln eur share buy-back scheme.
   
Carrefour underperformed the market, up just 0.01 at 52.15. The group today reported a 3.3 pct increase in net profits to 729 mln eur, beating consensus forecasts, but Landsbanki Kepler analysts sounded a note of caution, saying the figures did not surprise, and much stronger returns outside Europe were offset by underperformance in Europe.

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German shares close higher as Carrefour figs help Metro, Wall Street up

The DAX closed 80.76 points or 1.09 pct higher at 7,519.94 points, having traded between 7,416.66 and 7,529.75. The MDAX added 177.77 points or 1.79 pct to 10,128.42 points, while the TecDAX rose 11.73 points or 1.32 pct to 899.29 points. DAX futures were 26.00 points or 0.35 pct higher at 7,554.50, while bund futures added 0.09 or 0.08 pct to 113.75.
  
The DAX index recovered from earlier lows after economic data helped Wall Street push higher in early trade. Both the DJIA and the Nasdaq were higher at the end of trade in Frankfurt.
   
Shares in Metro jumped 2.79 eur or 4.54 pct to 64.25 eur, driven by higher sector valuations after French peer Carrefour released largely in line first half-year figures.
       
Infineon gained 0.31 eur or 2.90 pct to 11.01 eur on strong gains among tech stocks in the US yesterday led by Apple.
   
Siemens stock added 1.83 eur or 2.15 pct to 86.12 eur after the company said late yesterday that it has been awarded a 61.9 mln usd contract by US construction group Swinerton Builders to build three baggage handling systems at Los Angeles International Airport (LAX).
   
Merck advanced 1.41 eur or 1.56 pct to 95.51 eur after the pharmaceutical and chemical company said that its division Merck Serono's Phase II trial of Matuzumab to treat metastatic colorectal cancer (mCRC) did not meet its predefined endpoint.
   
Henkel added 0.65 eur or 1.78 pct to 37.09 eur, which traders largely credited to technical trading grounds after its shares neared their 200-day high of 38.30.
   
DaimlerChrysler rose 0.50 eur or 0.79 pct to 63.76 eur, continuing to advance a bit after the automaker announced yesterday that it plans to buy back nearly 10 pct of its outstanding shares, representing around 7.5 bln eur.
   
Bucking the trend, financials fell due to the lasting impact of investors' concern over banks' exposure to the sub-prime credit market crisis in the US. Deutsche Postbank fell 0.57 eur or 1.08 pct to 52.37 eur and Hypo Real Estate declined 0.42 eur or 1.05 pct to 39.53 eur.
   
Peer Deutsche Bank eased 0.11 eur or 0.12 pct to 89.99 eur as a number of rumours about the banking giant, including talk of a profit warning or that CEO Josef Ackermann will resign, began to circulate.
   
Lufthansa lost 0.08 eur or 0.37 pct to 21.28 eur as dealers said its shares became the victim of profit taking after strong gains yesterday and as Emirates airlines denied rumours it was interested in buying the German carrier.
   
Over on the MDAX, Vossloh soared 4.66 eur or 6.37 pct to 77.85 eur, to lead mid-caps higher. Its shares were helped by a buying spree after HSBC reiterated its 'overweight' stance on the railroad technology specialist on Tuesday and added the shares to its list of the 10 most interesting European industrial stocks.
   
TecDAX-listed GPC Biotech added 0.54 eur or 7.13 pct to 8.11 eur, which traders credited to a technical rebound. On the other end, United Internet slumped 0.11 eur or 0.79 pct to 13.77 eur.

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Amsterdam shares close higher amid increasing confidence; Ahold surges
 
The AEX closed 6.88 points or 1.35 pct higher at 517.67, after trading in the range 510.35-518.78. Government bonds traded broadly lower, while the euro stood at 1.3653 usd versus 1.3654 usd late yesterday.
   
Ahold surged ahead, closing 6.48 pct higher at 9.70 eur after the company said it will increase the size of its share buyback by 1 bln eur, while earnings during the second quarter also pleased investors.
   
TomTom gained 4.50 pct at 46.93 after it said it will present a new personal navigation device at the IFA consumer technology exhibition starting in Berlin tomorrow.
   
Heineken was also a solid gainer, putting on 3.96 pct at 45.93 after its shares dipped yesterday following strong earnings, but concern over its guidance.
   
Heavyweight Royal Dutch Shell tracked rising crude prices amid surprisingly steep declines in US energy stockpiles, gaining 2.19 pct at 27.98.
   
But oil services group SBM Offshore was the lead AEX decliner, one of just four blue chip decliners, closing 1.75 pct lower at 27.44.
   
Financials were mid-rung gainers, led by Aegon, which put on 1.30 pct at 13.23 eur, while ABN Amro gained 1.15 pct at 34.30. ING rose 0.73 pct at 29.15 and Fortis climbed 0.15 pct higher at 26.64.
   
Midcap peer SNS Reaal rose 1.17 pct at 15.53. The company said at market close it has reached a final agreement with the VVAA Groep over the acquisition of securities firm FBS Bankiers.
   
Blue chip staffing stocks were modest gainers, with Randstad putting on 0.27 pct at 40.37, while Vedior gained 0.18 pct at 16.32 as Petercam reiterated its 'reduce' rating and lowered its price target to 18.03 eur from 20.50.
   
On the midcap, Ordina gained 9.05 pct at 14.45 as Citigroup initiated coverage on the issue with a 'buy' rating and a target of 17.75 eur. Among decliners, Boskalis Westminster dipped 0.41 pct at 30.99 eur after ING upped its rating on the stock to 'buy' from 'hold' and increased its target to 40 eur from 26.7

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