UK/Euro Financial Market Daily Morning Briefing 03-02-2006

LONDON - Leading shares were off their highs in midmorning trade, losing some morning gains in delayed response to last night's sharp falls on Wall Street, with dealers anticipating trading to remain cautious ahead of US nonfarm payroll numbers due later in the session.

In London, Kingfisher, Smiths Group and mining issues led the fallers, although solid numbers from BA and gains from Shire Pharma lifted some of the gloom, dealers said.

At 10.00 am, the FTSE 100 index was 3.0 points higher at 5,750.3, off the early peak of 5,766.7. All the broader FTSE indices were also higher aside from the FTSE Small Cap index.

Volume was low, with 499.9 mln shares changing hands in 63,107 deals. 

In the absence of any UK economic data today, all eyes will be directed to January's US jobs report due at 1.30 pm with 250,000 jobs expected to have been added to payrolls, after adding 108,000 in December. 

Kingfisher led the fallers midmorning, shedding 7 pence at 232 in reaction to a negative note from Credit Suisse ahead of the retailer's fourth quarter trading update due on February 16.

The Swiss broker has cut its forecasts for Kingfisher for this year and
next.

Northern Rock ran into some selling pressure, off 12-1/2 at 1066-1/2, on rumours it might be considering a rights issue, although several dealers thought this to be highly unlikely on account of the fact that the bank would be a big beneficiary of Basle 2, allowing it to liberate capital that could be used to fund continuing high growth.

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Elsewhere, shares in Smiths Group dropped 16 pence lower to 1,013-1/2 as investors sought to lock in profits following a good recent run after the group reported a generally upbeat first half trading report.

Smiths Group said first half sales are expected to be ahead 20 pct year-on-year with pretax profit and EPS seen close to 14 pct higher. 

In reaction to the data, Merrill Lynch said that the numbers confirmed its expectations of strong performance in all divisions, although it thought Aerospace profits would be held back in the first half because of high research and development spending.

Centrica shares ran in to some profit-taking, down 4 pence at 296 after yesterday's strong speculative gains in reaction to Gazprom takeover talk.

Mining issues fell back after opening brightly as investors sought to trouser some profits ahead of the weekend. BHP eased 12 to 1015 with Anglo American off 16 at 2151 and Antofagasta down 14 at 2059. 

Elsewhere British Airways shares reversed earlier gains to trade 2-1/4 pence lower at 321-1/4 as Europe's third-largest airline reported a 9 pct increase in third quarter pretax profit, driven by a 5.8 pct rise in passenger traffic with higher growth in the front of the cabin, and has edged-up its revenue guidance for its full year.

For the three months to end-December 2005 the flag carrier made a pretax profit of 164 mln stg compared to analysts' consensus forecast of 145 mln stg and up from 151 mln stg in the previous year.

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Persimmon rose 17 pence to 1289 on a direct read across from peer Bellway who today said trading had picked-up in recent weeks and that it was a little more confident about the forthcoming Spring selling season, one of the most important for the building industry. 

Shire Pharma remained atop of the FTSE 100 leaders board, adding 15-1/2 pence at 920-1/2 in tandem with strength from its ADRs overnight amid continued market speculation that the group will agree a deal with Barr Labs. over a generic form of its key Adderall drug.

The speculation was revived after news Barr and Cephalon have settled their dispute over Provigil Generic.

Shares in Cadbury Schweppes rose 2 pence higher to 552 in reaction to an upgrade to 'buy' from 'sell' by Panmure Gordon, with the broker setting a 630 pence target price.

Panmure Gordon said it believes the worst of the margin pressure which prompted Cadbury to warn on guidance in October is now over and, as a result, it has increased its margin expansion forecasts for Cadbury and expects the group's cash flow to improve significantly.

On the second line, shares in Burren Energy lost 26-1/2 pence at 984 after being downgraded to 'reduce from 'neutral' by UBS on valuation grounds after yesterday's disappointing drilling news from the group's partner in the Congo, Maurel & Prom

Late yesterday Maurel & Prom said that the 1501 well in MBoundi is a dry hole and that this will lead them to downgrade its oil in place estimates for the well, although no figures were given.

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.

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PARIS - Market data at 10.29 am:

Major indices:

• CAC-40 up 1.99 points or 0.04 pct at 4,929.88
• SBF-80 up 9.26 points or 0.17 pct at 5,537.13
• SBF-120 up 2.89 points or 0.08 pct at 3,569.68
  
• Volume: 979 mln eur
• 23 CAC-40 stocks up
• 14 CAC-40 stocks down
• 3 CAC-40 stocks unchanged

Major gainers:

Michelin, up 1.49 eur or 3.06 pct at 50.25, after an upgrade by Exane to 'outperform' from 'neutral'. Michelin's BF Goodrich unit said it will close a Canadian plant to cut stocks in a contracting market.

Arcelor, up 0.67 eur or 2.28 pct at 30.01, after its CEO said a project-based alliance with a smaller company is being mulled to fend off the hostile bid by Mittal Steel.

Thomson, up 0.27 eur or 1.92 pct at 14.36, recouping some ground lost in yesterday's 16 pct fall after the company reported a slowdown in sales growth. Standard & Poor's also put Thomson's 'BBB+/A-2' credit ratings on CreditWatch with negative implications.

Major losers:

BNP Paribas, down 0.70 eur or 0.95 pct at 73.25
Capgemini, down 0.33 eur or 0.89 pct at 36.90
Carrefour, down 0.33 eur or 0.86 pct at 38.17

Amsterdam

AMSTERDAM - Market data at 10.26 am

Major indices:

• AEX index             451.78, up 1.37 point
• AMX Midcap index      570.15, up 2.28 points
• Government bonds      narrowly mixed

Major decliners:

Royal Dutch Shell extended yesterday's losses on the back of disappointing fourth-quarter numbers and share buyback plan, falling 0.8 pct to 27.17 as Morgan Stanley downgraded the stock to to 'equalweight' from 'overweight'

Heineken, off 0.31 pct at 28.82, and Aegon, losing 0.3 pct at 1.3.25, were the only other blue chip decliners

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FRANKFURT - German shares AFX market data at 9.54 am

Major indices:

• DAX 30 - 5,679.12, up 29.52 points or 0.52 pct
• MDAX - 8,114.94 up 45.54 points or 0.56 pct
• TecDAX - 695.73, down 7.66 points or 1.09 pct
• DAX future - 5,692.50 up 29.00 points or 0.51 pct

Major risers:

Deutsche Lufthansa, up 0.49 eur or 3.74 pct at 13.60, after its UK peer British Airways raised its revenue guidance for the full year.

Deutsche Boerse, up 1.26 eur or 1.26 pct to 101.22, after WestLB upgraded the stock to to 'reduce' from 'sell' and hiked its target price on increased estimates for the related business segments Eurex and Xetra, leading to higher EPS forecasts.

Linde, up 0.64 eur or 0.96 pct at 67.14

RWE, up 0.62 eur or 0.91 pct at 68.92

E.ON, up 0.75 eur or 0.80 pct at 94.15

Major fallers:

Fresenius Medical Care, down 0.22 eur or 0.25 pct at 87.67

TUI, down 0.03 eur or 0.17 pct at 17.41

Bayer, down 0.05 eur or 0.15 pct at 33.94

Hypo Real Estate, down 0.04 eur or 0.07 pct at 53.90

Henkel flat at 88.15 after WestLB downgraded the stock to 'hold' from 'add' at WestLB on uncertainty over the company's outlook as well as its organic sales growth in 2006.

London 0908 GMT         Singapore 3.05 pm (0705 GMT)

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