UK/Euro Financial Market Daily Morning Briefing 01-02-2006

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London

London shares remain lower in early deals amid US rate concerns BSkyB gains

Leading shares remained under pressure in early deals, weighed down by concerns over further Fed rate hikes and disappointing after-hours earnings from Google, although BSkyB bucked the trend after pleasing interims, dealers said.

By 09.00 am, the FTSE 100 index was down 3.2 points at 5,757.1, while the broader indices were also weaker.

Volume was moderate, with 192.2 mln shares changing hands in 23,914 deals.

US stocks closed lower on Wall Street last night after the Federal Reserve raised interest rates by an anticipated quarter of a percentage point and said it may have to raise rates further in chairman Alan Greenspan's last meeting after more than 18 years at the helm of the central bank.

The DJIA ended down 35 points at 10,864, while the Nasdaq closed down 0.96 points at 2,305.

Things got worse after the bell however, with Google shares plunging nearly 18 pct in after-hours trade after the search engine announced that its net income failed to match analysts' expectations.

Google fell to a low of 352 a share from its regular session closing price of 432.66, before recovering slightly.

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Across Asia overnight, the Nikkei 225 index closed 169.73 points lower at 16,480.09, while the Hang Seng ended the day 10.84 points lower at 15,742.30.

In the UK, BSkyB shares stood out with a gain of 8 pence to 494 after a pleasing set of interim results.

The satellite broadcaster British Sky Broadcasting Group reported a rise in half-year pretax profit above expectations, helped by a surge in net new subscribers, and said it is on track to hit its target of 10 mln customers by 2010.

In response, Merrill Lynch reiterated its 'buy' advice and said overall, everything appears positive in the interim results as opposed to previous quarters.

Referring to the 215,000 new customers, the broker said it easily beat its flagged 159,000, with multi-room net adds of 158,000 above Merrill's forecast of 75,000.

Unilever was also in demand, adding 9 pence to 600, lifted by press reports of private equity interest.

Centrica meanwhile was boosted by an upgrade to 'buy' from 'hold' by Citigroup Smith Barney, with a raised target of 310 pence.

AstraZeneca was also helped by upbeat broker comment, with JP Morgan raising its target to 2,800 pence from 2,750 and describing the drug giant as "a strong contender for a potential acquirer in Europe".

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On the downside, Cable & Wireless remained under pressure, losing another 2-1/4 pence to 100 as brokers continued to express their disappointment at yesterday's profit warning.

UBS downgraded its stance on the telecoms group to 'reduce' from 'neutral', while HSBC reiterated its 'underweight' recommendation.

On the second line, Brit Insurance shares added 3 pence to 96-1/2 after the company said 2005 pretax profit will come in "significantly ahead of market consensus expectations", prompting Seymour Pierce to raise its price target to 90p.

On the economic front, January ISM data is expected to come in at 55.4 pct, down slightly from last month's 55.6 pct reading.

December construction spending will also be eyed for any signs of a US housing market slowdown, while crude inventory data due later in the afternoon should be closely followed.

Diary of Events

For a diary of key UK financial events today, click here

US Summary

For a summary of US stocks at the close of trade, please click here

Frankfurt

German Jan manufacturing PMI 55.0; consensus 54.0

The German purchasing managers' index for manufacturing rose to 55.0 in January from 53.6 in December, according to market sources.

Economists polled by AFX News had forecast the index to reach 54.0.

A reading above 50 indicates that the services sector is expanding, while one below 50 indicates contraction.

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Paris

PARIS - Market data at 09.16 GMT

Major indices:

• CAC-40 up 9.76 points at 4,957.75
• SBF-80 up 37.38 at 5,543.44
• SBF-120 up 9.39 at 3,587.99

• Volume: 767 mln eur
• 25 CAC-40 stocks up
• 15 CAC-40 stocks down

Major gainers:

Eurotunnel, up 0.01 eur or 2.7 pct at 0.38 after saying that debt restructuring talks are still underway ahead of tonight's expiration of a 6-month payment waiver.

TF1, up 0.33 or 1.3 pct at 26.41 and bouncing from opening weakness, as investors speculate the company is well positioned to bid for all or part of Germany's ProSiebenSat.1, after Axel Springer abandoned its bid to acquire the German broadcasting group.

Rhodia, up 0.09 or 4.1 pct at 2.30 after Deutsche Bank analysts upgraded the stock to 'buy' from 'sell' with a new price target of 2.6 eur, up from 1.4 previously.

Major losers:

Michelin, down 1.35 or 2.8 pct at 47.80 and extending yesterday's losses, seen after its US rival Goodyear warned of continuing raw material price pressure.

Suez, down 0.18 at 30.26 as profit taking followed its release of full year sales, which showed organic growth of 6.3 pct to 41.489 bln eur, ahead of estimates; the shares closed last night at their highest level since summer 2002.

Amsterdam

AMSTERDAM - Market data at 09.27 am

Major indices:

• AEX index 452.79, up 2.29 points
• AMX Midcap index 563.14, up 2.68 points
• Government bonds Broadly flat

Major gainers

Stork jumped 6.40 pct to 39.05 eur as investors cheered better-than-expected Q4 and FY results, and after announcing share buybacks and divestments of two divisions, dealers said. Several brokerages upgraded their recommendations.

Unilever added 2.08 pct to 58.95 eur

Numico gained 2.27 pct to 38.25 eur

Hagemeyer rose 1.37 pct to 2.97 after an upgrade to 'buy' from 'hold' at Rabo Securities, with analysts citing an upturn in Hagemeyer's UK market potential.

SBM Offshore added 1.38 pct to 84.60 eur

TNT advanced 1.07 pct to 27.31 eur with investors welcoming the company's plan to expand operations in India, dealers said.

Vedior gained 0.53 pct to 13.35 eur after a well-received announcement of a takeover in Switzerland Van der Moolen added 1.46 pct to 7.65 eur

Major losers:

Aegon slipped 0.15 pct to 13.28 eur

KPN edged 0.38 pct lower to 7.92 eur

Laurus shed 1.21 pct to 3.26 eur in mild profit-taking, dealers said.

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Frankfurt

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