UK/Euro Financial Market Daily Morning Briefing 04-10-2007

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London shares firmer, rallying from opening falls led by financial issues

UK blue chips were a touch higher in early deals having rallied from opening falls thanks to fresh strength in financial issues, overcoming any caution engendered by weaker showings overnight in New York and Asia and ahead of key interest rate decisions due today in both the UK and Europe today.
   
At 9.19 am, the FTSE 100 index was 4.2 points firmer at 6,539.4, having recovered from an opening drop to 6,507.2.
   
All the broader FTSE indices remained weak, however, aside from the FTSE All Share which was buoyed by its blue chip components. Early volume was fair, with 297 mln shares changing hands in 68,699 deals.
   
Overnight on Wall Street, the DJIA ended 79.26 points lower at 13,968.05, surrendering the recently recaptured 14,000 level, while the S&P 500 closed down 7.04 points at 1,539.59, and the Nasdaq composite index dropped 17.68 points to finish at 2,729.43.
   
US stocks retreated in nervous trade ahead of Friday's key September US jobs report, spooked by news that the latest US ISM service sector showed a decline last month.
   
The selling continued today in Asia. Japan's Nikkei 225 index closed 107.40 points lower at 17,092.49, while in Hong Kong, the Hang Seng ended 505.96 points weaker at 26,973.98 as Wall Street's decline sparked some profit-taking following recent strong gains.
   
Meanwhile oil prices in Asian trade sunk below the key 80 usd a barrel level, partly on concerns over slower US growth ignoring yesterday's weekly US Department of Energy report showing an unexpected drop in key US inventories.
   
All eyes, however, in London will be on the interest rate decisions from both the Bank of England and the European Central Bank today.
   
The BoE's Monetary Policy Committee is expected to keep interest rates unchanged at 5.75 pct today, though a majority of analysts now expect rates to fall within the next six months.
   
Meanwhile the ECB should also keep its interest rates unchanged at today's governing council meeting in Vienna and the chances of a further rate hike are now fading, according to economists.
   
In London, strength in financial issues led the blue chip turnaround in early trade with Northern Rock once more the top FTSE 100 gainer, up 11.7 pence to 163.5 as hopes for a rescue bid for the troubled mortgage lender continued to do the rounds.
   
Yesterday press reports suggested US hedge funds firm JC Flowers was in talks about a possible 175 pence a share bid for the group.

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Among other banking gainers, Royal Bank of Scotland shares added 14 pence at 568, with Barclays up 5-1/2 pence at 645-1/2 as the lengthy bid battle between the two for Dutch group ABN Amro is set to come to a close.
   
Barclays is expected to concede defeat in its 16 bln stg takeover battle with the RBS-led consortium for ABN Amro.
   
Barclays' cash and shares offer closes today, while the RBS-led consortium offer will close tomorrow.
   
Among other blue chip gainers, oil major BP took on 2 pence at 599 after Exane BNP Paribas double-upgraded the UK oil major to 'outperform' from 'underperform' in a review of the European oil sector.
   
Exane BNP Paribas raised its oil price forecasts for 2007-2010 by 26 pct from 55.5/bbl usd to 70.3/bbl usd, reflecting higher costs, a weaker US dollar, tighter capacity and lower inventories.
   
The broker also raised EPS estimates across the sector and upgraded BP to reflect its earnings leverage to the oil price.
   
And clothing retailer Next got a boost from being upped to 'overweight' from 'equal-weight' in a UK retail report from Lehman Brothers, with the broker saying it believes the Next product line is improving and the company represents good value. Next shares added 22 pence at 2,106.
   
But elsewhere on the high street Argos-owner Home Retail Group shed 5-1/4 pence at 393 after being downgraded to 'equal-weight' from 'overweight' with a reduced price target of 425 pence, down from 500 in the same retail review.
   
Lehman said that for Home Retail Group the supply chain is becoming increasingly inflationary, with slowing mortgage equity withdrawal placing increasing uncertainty on the UK housing market.
   
Among other blue chip fallers, food retail giant Tesco ran into some profit-taking after yesterday's post-results advance, losing 3-3/4 pence at 459-3/4.
   
But further weakness among the heavyweight mining issues was the main brake once again on UK blue chips as commodity prices retreated amid worries over the growth outlook in the US.
   
Rio Tinto was the top FTSE 100 faller, down 121 pence at 4,084, while BHP Billiton shed 52 pence at 1,695, Anglo American lost 97 pence at 3,200, and Lonmin dropped 120 pence at 3,502.

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On the second line, oil service firm Abbott Group was the biggest FTSE 250 riser, up 59-1/4 pence to 351, a 20 pct leap in value after the firm confirmed it received proposals which may lead to an offer being made for the company.
   
The Financial Times reported today that private equity group 3i is understood to have made an 375-pence-a-share indicative offer for Abbot. 3i shares added 10 pence at 1,040.
   
Meanwhile among Abbot's peers, Expro International gained 29 pence at 1,033, with Hunting gained 15-1/2 pence at 701-1/2, and Petrofac took on 9-3/4 pence at 482-1/2 on the sector consolidation move.
  
Elsewhere on the M&A front, Bodycote shares gained 5 pence at 277 after press reports suggested the group is interested in persuading Swiss firm Sulzer to renew its bid interest.
   
On the news front, Aveva was a good gainer, up 55 pence to 1,020 after the group said that it sees FY results ahead of its expectation with Landsbanki upgrading to 'buy' from 'hold' with a raised price target of 1,200 pence from 1,000 pence in response.
   
In a trading statement, Aveva said its results for the six months ended Sept 30 are expected once again to show strong growth and full-year results are seen ahead of its previous expectations.
   
And broker upgrades gave a boost to St James' Place Capital, up 13-1/2 pence to 414-1/2 with Goldman Sachs upping its stance to 'buy' from 'neutral', while condom-maker SSL added 22 pence at 461 after Credit Suisse raised its rating to 'outperform' from 'neutral'.
   
But on the downside with mid caps, chemicals firm Victrex lost 13 pence at 688 after its trading update failed to impress investors.
   
Victrex said it expects its full-year profits to be in line with market expectations following record annual sales volume and better-than-expected margins in the second half.

Diary of Events

For a diary of key financial and corporate events in the UK today, click here

US Summary

For a summary of US stocks at yesterday's close of trade, click here

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MILAN - Market data at 9.40 am

Main indices
   
Mibtel at 31,293, down 0.27 pct
S&P/Mib at 40,316, down 0.28 pct

Main S&P/Mib losers
   
STMicro down 1.39 pct at 11.43
   
Eni down 1.32 pct at 25.32 eur 44 as Exane BNP downgraded the stock to 'neutral' from 'outperform' as the stock stands on a P/E premium to the majors and continues to face uncertainties over the Kashagan oil field
   
Italcementi down 1.32 pct at 16.66 as profit taking kicks in after the rally of the past two trading sessions
   
Telecom Italia down 1.09 pct at 2.085
   
Saipem down 0.96 pct at 28.00

Main S&P/Mib gainers
   
L'Espresso up 2.67 pct at 3.5975 as Citigroup upped the stock to 'buy' from 'hold' with a 4.1 eur target due to the group's positive outlook. In a separate report, Goldman Sachs kept is 'neutral' stance while cutting the price target to 3.43 eur from 3.67 eur.
   
Banco Popolare up 0.49 pct at 17.07
   
Intesa Sanpaolo up 0.34 pct at 5.575
   
Generali up 0.23 pct at 30.87
   
Luxottica up 0.12 pct at 24.90

Other stocks in the news
   
Piaggio down 0.65 pct at 3.07 despite the upgrade from Citigroup from 'hold' to 'buy[' with the target raised to 3.40 eur from 3.30 eur
   
Tiscali down 0.65 pct at 1.987 after reports that Vodafone is set to win the bid for the Italian business of Tele2 with a 560 mln eur offer. Tiscali was also interested in the Tele2 Italia.

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VIENNA - Market Data at 10.10 am, indices mixed

Main Indices
   
ATX flat, rising 0.04 pct, or 1.93 points, at 4,689.02
ATX Prime down 0.15 pct, or 3.41 points, at 2,247.77

Main Gainers
   
RHI up 1.18 pct at 34.30 eur
   
A-TEC Industries up 1.08 pct at 140.50 eur
   
Zumtobel up 1.01 pct at 27.95 eur
   
Telekom Austria up 0.58 pct at 18.96 eur
   
Raiffeisen Intl up 0.57 pct at 105.85 eur, as pricing of new bearer shares comes in in-line with market expectations

Main Losers
   
Austrian Airlines down 2.42 pct at 8.05 eur, on profit-taking following substantial gains in recent days
   
Schoeller-Bleckmann down 1.78 pct at 61.39 eur
   
Flughafen Wien down 1.22 pct at 73.49 eur
   
Wienerberger down 1.22 pct at 45.24 eur
   
BWIN down 1.05 pct at 16.91 eur

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AMSTERDAM -  Market data at 10.32 am

Major indices
   
AEX                539.42, down 1.22 points
AMX Midcap         725.92, down 1.38 points
Government bonds   lower

Major decliners
   
Ahold dropped 1.40 pct to 10.58 eur
   
TomTom lost 2.20 pct to 49.90 eur as investors continue to fear that TomTom may have to raise its takeover bid on Tele Atlas
   
Philips was down 1.11 pct to 31.10 eur after news that it has made an add-on acquisition for its medical systems division
   
Arcelor Mittal dropped 2.08 pct to 53.25 eur amid profit-taking
   
ASML shed 1.99 pct to 23.13 eur after news that Goldman Sachs now owns a little over 5 pct of shares in the company
   
Corporate Express dropped 1.03 pct to 7.96 eur after a downgrade to 'hold' from 'buy' at ING
   
Boskalis fell 1.36 pct to 36.35 eur
  
Wereldhave lost 0.96 pct to 83.69 eur after news of a sale of offices

Major gainers
   
Arcadis was up 0.83 pct to 54.50 eur after news that it was awarded a new 11 mln eur contract in Poland
   
Fortis rose 2.87 pct to 21.52 eur and ABN Amro put on 0.51 pct to 37.68 as the takeover battle over ABN Amro is drawing to a close, with Barclays widely expected to concede defeat soon
   
Aegon added 2.15 pct to 13.76 eur amid hopes among investors that the global credit crunch is now over
   
SNS Reaal put on 1.17 pct to 16.45 eur amid reports that Swiss Life may want to auction off its Dutch Zwitserleven unit

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