UK/Euro Financial Market Daily Morning Briefing 05-07-2007

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Leading shares were weaker early on, in quiet trade following yesterday's US Independence Day holiday and investors exercising caution ahead of the Bank of England's interest rate decision at noon, with Vodafone a casualty on reports it has lost out on a deal to offer Apple's iPhone.

At 9.20 am, the FTSE 100 index was down 23.9 points at 6,649.2, with the FTSE 250 index 3.8 points higher at 11,838, and the remaining indices mixed.

Early volume was light, with 299 mln shares changing hands in 60,444 deals.

Vodafone was a blue-chip casualty early on, falling 1.32 pct or 2.2 pence to 163.9, as it seems it has lost the iPhone deal.

The FT said the European iPhone will operate on slower 2.5 generation mobile networks, not the 3G infrastructure of companies such as Vodafone.

The US market was closed yesterday for the Independence Day holiday.

The mood in Asia today was bright, with the Nikkei 225 Index closing up 52.76 points or 0.29 pct at 18,221.48, while the Hang Seng Index finished its morning 89.34 points higher at 22,307.89.

Turning to the blue-chip gainers, the heavyweight miners, which are more affected by the interest rate background globally, and to which UK interest rate decisions are largely incidental, lent support, buoyed by firm base metal prices, with BHP Billiton the sector's top gainer, up 27 pence at 1,464, Kazakhyms 24 pence higher at 1,320, Xstrata 54 pence firmer at 3,163, Lonmin adding 55 pence at 4,291, Anglo American putting on 36 pence to 3,213, Rio Tinto climbing 43 pence to 3,987, Vedanta Resources adding 12 pence to 1,692, and Antofagasta putting on 5-1/2 pence to 649-1/2.

But Capita Group was the top riser early on, up 15 pence to 746-1/2, after Deutsche Bank upped its target to 800 pence from 700 and reiterated its 'buy' rating after highlighting the firm's compelling combination of strong, defensive growth.

Meanwhile, shares in Cadbury Schweppes moved up in early deals, up 4-1/2 pence to 675, following news after yesterday's close the Coca-Cola Co is exploring whether to buy its Snapple iced tea brand or build its own tea brand, according to a spokesman.

Elsewhere, Lloyds TSB took on gains, up 8-1/2 pence at 562, boosted by a Citigroup upgrade to 'buy' from 'hold' with a raised target of 650 pence from 600 this morning.

Citigroup highlighted its strategy of modest asset growth, tight cost control, and an increased focus on liability-driven business which it said would deliver double digit earnings growth out to 2010.

It said Lloyds TSB has the benefit of being neither caught up in time consuming M&A activity nor suffering the fall out from pursuing an aggressive growth strategy in a period of rising interest rates.

Turning to the second line, a spate of midcap trading statements were issued.

Shares in Michael Page International surged higher early on, up 28-1/2 pence to 588, after the recruitment firm posted a strong second-quarter trading update, leading Altium Securities to upgrade the stock to 'add' from 'outperform'.

The company posted second-quarter gross profit of 121 mln stg, up 38.4 pct on the second quarter of 2006, while gross profit for the first half of 2007 was up 36 pct to 226.5 mln stg.

The group, which specialises in high-margin professional and permanent staffing, said its strategy of pursuing geographic diversification is working with gross profit from Europe, the Middle East and Africa region now exceeding the UK for the first time.

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Updating the market on trading for the first six months of 2006, Carillion said it continued to generate "substantial" cost savings from the integration of Mowlem and was confident in delivering the previously announced 26 mln stg savings by year end.

The company said that the enlarged group is benefiting from enhanced positions in a wider range of growth markets and expects its order book to remain at the record level of around 16 bln stg. It expects to make further progress in the second half of the year.

But shares in peer Interserve meanwhile fell, down 7 pence to 510-1/2, after saying trade continues to be strong generally buoyant markets, and it is confident about its outlook for the full year, with Altium keeping its rating at 'buy' and raising its target to 575 pence.

In a trading update ahead of its interim results on Sept 5, Interserve said it has continued to win several significant new contracts, and its operational performance is good.

It added that its Equipment Services division in South Africa is making

"encouraging" progress and is well-placed to meet the company's expectations for the full year.

In reaction, Altium said that, based on the sustained trading momentum across the key operating units, it would be surprised if consensus numbers were not moving forward through the course of 2007.

It said the shares have rallied strongly -- up 10 pct since June -- but it thinks there is further upside given the strong momentum.

Meanwhile, shares in housebuilder Redrow edged higher, up 1-1/2 pence at 539-1/2, after saying in its trading statement it expects its full-year performance to be in line with its expectations as total forward sales to June were up over 6 pct at 2,148 homes.

The company also said the average selling price for the year was about 160,000 stg and operating margins are anticipated to be in line with its expectations.

Bridgewell Securities maintained its profit estimates and 'overweight' stance.

Elsewhere, shares in Game Group experienced gains this morning, up 9-1/4 pence at 191-1/4, after the computer and video games retailer said it expects to report continuing robust trading when it updates shareholders at its annual meeting.

The group, which trades from over 830 stores in nine European countries, last updated the market in April when it reported that like-for-like sales in the twelve weeks to 21 April soared by 44 per cent.

And finally, turning to the midcap casualties, Cookson Group lost 23-1/2 pence at 723-1/4 on profit-taking following a trading update and despite Bridgewell Securities reiterating its 'overweight' stance.

Earlier, materials science company Cookson Group said trading results for the first five months of the year were in line with the expectations laid out in its AGM statement in May.

At that time Cookson warned its revenue and earnings growth for 2007 would be affected by the weakening of the US dollar.

However, the group said it continues to expect a significant improvement in the performance of its continuing operations on a constant currency basis, across Electronics, Ceramics and Precious Metals.

In reaction, Bridgewell said that profit taking is likely at Cookson following its strong share price performance.

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MDAX - down 5.32 points, or 0.05 pct, at 11,242.37

TecDAX - down 4.14 points, or 0.43 pct, at 969.81

DAX futures - down 47.50, or 0.58 pct, at 8,096.00

Major Decliners:

TUI, down 0.45 eur or 2.26 pct at 20.82

Hypo Real Estate, down 0.48 eur or 1.00 pct at 47.37

Adidas, down 0.50 eur or 1.05 pct at 47.26

Deutsche Bank, down 0.98 0.90 pct at 107.61

RWE 0.70 eur or 0.89 pct at 78.00

Major Advancers:

Deutsche Boerse, up 0.44 eur or 0.51 pct at 86.70, after the German stock exchange's chief executive officer Reto Francioni said yesterday that the exchange is not isolated despite mergers of competitors and defended the company's intentions to grow organically

MAN, up 0.49 eur or 0.43 pct at 114.04, extending a 7-day-long string of advances

Bayer, up 0.13 eur or 0.23 pct at 57.34

Other Major Movers:

MDAX-listed EADS up 0.29 eur or 1.21 pct at 24.32, after Dubai International Capital confirmed it bought a 3.12 pct stake in the Germanic-Franco aerospace consortium

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FORTHCOMING EVENTS

Today

Danish May industrial orders, sales (09.30 am)

Tomorrow

Nothing expected

TODAY'S PRESS

Danish share prices seen rising further as foreign investors buy into Danish stocks - Danske Bank (Boersen)

Danish krone gains strength, boosted by foreign investments in Danish stocks (Berlingske Business)

AP Moller Maersk's sale of Maersk Data to IBM in 2004 led employees to leave group and contributed to IT problems in Maersk's container division - sources (Boersen)

Novozymes says bioethanol may substitute for half of transport sector's global petrol consumption (Berlingske Business)

MARKET SENTIMENT

WILLIAM DEMANT INITIATED AS 'UNDERWEIGHT' BY LEHMAN, TARGET 490 DKR

Paris

Shares are expected to open higher, with advances on Asian markets setting the tone as Wall Street was closed yesterday for a US holiday.

Yesterday, the CAC-40 index ended up 28.24 points or 0.47 pct at 6,098.08. Turnover for the day was 4.2 bln eur.

On the Matif, July CAC-40 futures were trading at 6,112.0 ahead of the official opening.

The euro was quoted at 1.3610 usd against 1.3609 late yesterday.

FORTHCOMING EVENTS

TODAY

Renault H1 unit sales, 8.45 am

French govt leaders reportedly meet on GDF-Suez merger plan

TOMORROW

NYSE Euronext deputy CEO Theodore speaks to journalists, 8.30 am

May budget figures, 8.45 am

France Telecom CEO Didier Lombard speaks to journalists, 9.00 am

Peugeot H1 unit sales; press conferences at 9.00 am for Peugeot and 10.45 am for Citroen

TODAY'S PRESS

Sarkozy, Fillon, Lagarde to meet over GDF-Suez merger fate today (Financial Times)

BNP Paribas seeking to avoid dilution of 19.2 pct Bank of Nanjing stake (Shanghai Securities News)

COMPANY NEWS

Renault CEO says 3 US pensions funds each hold 7 pct stake in group

Renault to decide next year on 3,000 usd car project for India

Technip wins contract from Petro-Canada jv to build heavy oil upgrade facility

French govt to scrutinise plans by Pearson, LVMH to sell financial papers

Accor renews 2 bln eur credit line on 'significantly improved' terms

La Mondiale rating affirmed on financial position, products - Fitch

EADS making progress on Power8; governance to be modified, not rewritten

MACROECONOMIC/POLITICAL/MISCELLANEOUS NEWS

French govt aims to cut health spending by 1.225 bln eur per yr

MARKET SENTIMENT

Carrefour upgraded to 'buy' from 'neutral' by Merrill Lynch, target 59 eur

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Shares are expected to open flat to slightly higher, but with gains seen limited ahead of the US open.

Yesterday, the OMX Stockholm index closed up 0.39 pct at 417.34, while the OMX Stockholm 30 index ended 0.39 pct higher at 1,279.49.

FORTHCOMING EVENTS

Tomorrow

Sweden June central govt borrowing requirement (9.30 am)

SAS June traffic (11.00 am)

PRESS HEADLINES

Thai air force reportedly set to buy 6 Saab JAS 39 Gripen fighters over next 5 years (Bangkok Post)

Nordea biggest in the world in syndicated loans to shipping, oil and gas industry (Dagens Industri)

Engineering sector turning downwards; ABB Sweden boss says convinced industrial cycle has peaked, and that clear that economic growth slowing (Dagens Industri)

MARKET SENTIMENT

*TELIASONERA UPPED TO 'NEUTRAL' VS 'UNDERWEIGHT' BY JP MORGAN, TARGET 55 SKR 50

Madrid

IBEX-35 index down 93.90 points at 14,897.0

Major gainers:

Telefonica, up 0.01 eur at 16.56, after it said yesterday that it will appeal the European Commission's fine of 152 mln eur for allegedly abusing its market dominance in broadband services.

Repsol YPF, up 0.12 at 30.11.

Sacyr Vallehermoso, up 1.02 or 2.48 pct at 36.81.

Major losers:

Sol Melia, down 0.32 at 17.28, and NH Hoteles, off 0.05 at 16.56, amid profit taking after yesterday's outperformance on news of the 26 bln usd takeover move for Hilton Hotels Corp from the Blackstone Group.

Endesa, off 0.04 at 39.27 and Acciona, down 0.40 at 203.85, though outperforming after the CNE approved the constructor's joint bid with Enel for the Spanish utility, though imposed 12 conditions, which Cinco Dias reported will be appealed by the companies.

BME, down 0.45 at 44.05 after Deutsche Boerse CEO defended the company's intentions to grow organically, dampening expectations for a possible tie up with BME.

Selected heavyweights, with Santander down 0.05 at 13.83 and BBVA off 0.08 at 18.33.

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