UK/Euro Financial Market Daily Morning Briefing 05-10-2006

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London shares open above key 6,000 level as M&A fever fuels Corus gains

Leading shares broke through the key 6,000 level as merger and acquisitions speculation fuelled gains in Corus, while a rebound in energy stocks and expectations that UK rates will be kept on hold added to news the Dow closed at record highs.
   
At 9.00 am, the FTSE 100 was 36.7 points firmer at 6,003.2, with the broader indices all positive. Volume was solid with 382 mln shares changing hands in 44,226 deals.
   
US stocks rallied yet again, with the DJIA closing at a record high for the second day in a row as investors grew more optimistic the Federal Reserve will lower interest rates as the economy cools.
   
Ongoing fears over inflation were eased as Fed Chairman Ben Bernanke said the slowing housing market could shave 1 pct off gross domestic product growth in the second half of this year and into next year.
   
The DJIA rose 123.27 points to close at 11,850.61, the S&P 500 ended 16.11 firmer at 1,350.22, it best level in 5-1/2 years, and the Nasdaq was up 47.30 at 2,290.95.
   
The upbeat mood spilled into Asia, as the Nikkei 225 index began its afternoon session 263.66 points higher at 16,346.21 and the Hang Seng closed for lunch up 225.25 points at 17,854.46.
   
Still in Asia, oil prices rebounded slightly, coming off near eight-month lows, amid unrest in Nigeria and reports OPEC members are ready to cut production in a bid to support the market.
   
Earlier this morning, New York's main contract, light sweet crude for November delivery, was up 77 cents at 60.18 usd a barrel, having plunged to 57.75 usd in the US, a level not seen since Feb 16.
   
In London, the Bank of England is poised to leave rates on hold, at 4.75 pct, at noon today although economists are forecasting a rate rise next month, particularly after strong services sector data yesterday.
   
All 35 economists polled by AFX News expect the Monetary Policy Committee to keep its base rate unchanged.

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In contrast, the European Central Bank is flagged to raise the cost of borrowing by 25 basis points to 3.25 pct when it meets in Paris later today.
   
Turning to equities, Corus was yet again the top performer, up over 11 pct or 47-1/2 pence at 455, after India's largest private steel maker, Tata, confirmed it is considering a bid for the Anglo-Dutch group this weekend.
   
Reports suggest a bid of 580 pence per share is imminent, while the Financial Times claims a Russian producer or Turkey's Erdemir are also interested.
   
Erdemir said this week it was open to foreign partnerships and a tie-up could fit well with Corus's strategy of looking for a partner that could provide it with low-cost steel slab to process in the UK. Consolidation hopes also lent support to British Airways, up 4-3/4 at 455.
   
Spain's ElConfidencial.com speculated Iberia's gains yesterday were on the back of renewed expectations BA may combine with the Spanish airline.
   
And today, low-cost peer Ryanair said it has taken a 16 pct stake in Irish flag carrier Aer Lingus and was making a 2.80 eur per share all-cash offer for the newly listed group valuing it at 1.481 bln eur.
   
Yesterday, BA itself was mooted as circling Aer Lingus. Second-line rival easyJet rose 19-1/2 at 510 in response.
   
Elsewhere, a rebound in miners also lent support, helped by a jump in copper prices and firmer gold, as investors used the recent weakness across the sector as a buying opportunity.
   
Rio Tinto took on 70 pence at 2,471, BHP gained 27 pence at 897, Kazakhmys rose 23 pence at 1,076 and Antofagasta added 10-3/4 at 461-3/4.
   
Still in commodities, oil heavyweights fought back from recent falls on the firmer crude price -- BP took on 9-1/2 pence at 579-1/2, Royal Dutch Shell rose 23 pence to1,783, BG was 11-1/2 pence better at 636-1/2 and Cairn Energy firmed 31 pence at 1,807.
   
On the downside, defensive stocks were out of favour with BAT down 12 pence at 1,426, Imperial Tobacco off 6 pence at 1,764 while cruise operator Carnival fell to profit-taking after the oil price rebound, down 13 pence at 2,593.

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In midcaps, Spirent was the top performer, 3-1/2 pence better at 55-1/2, after the communications technology group said third-quarter trading is in line with expectations and expects a modest improvement in full-year sales.
   
Furthermore, it announced plans to double the amount of cash it will return to shareholders to 100 mln stg.
   
In response, Citigroup reiterated its 'hold' advice and said the proposal to return an additional 50 mln stg signals improved confidence in long-term trading outlook and a pause in acquisitions.
   
Second-line oil stocks also benefited from the bounce in crude prices with Dana up 26 pence at 1,152, Tullow Oil 8-1/2 pence firmer at 367-1/2 and Soco International 33 pence better 1,504.
   
In contrast, Victrex was 33-1/2 lower at 745 after an in-line trading update from the polymer group prompted profit-taking.
   
Sentiment was further knocked as Dresdner Kleinwort cut its stance to 'hold' from 'buy' on valuation grounds.

US Summary

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

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PARIS - Market data at 10.04 am:

Major indices:
   
CAC-40 up 32.40 points or 0.62 pct at 5,288.95
SBF-80 up 40.26 points or 0.67 pct at 6,017.68
SBF-120 up 23.75 points or 0.62 pct at 3,827.73

Volume: 806 mln eur
32 CAC-40 stocks up
8 CAC-40 stocks down

Major gainers:
   
Arcelor-Mittal, up 0.61 eur or 2.27 pct at 27.51, amid fresh talk of consolidation in the steel sector as Tata Steel confirmed its interest in Corus.
   
Societe Generale, up 2.00 eur or 1.59 pct at 127.90. Citigroup reportedly has it in sight as a possible merger target, and yesterday SocGen completed the purchase of Unicredito's securities service.
   
Renault, up 1.35 eur or 1.51 pct at 90.60, as talks ended on a possible alliance with General Motors. The talks had contributed to earlier downgrades of Renault.

Major losers:
   
EADS, down 0.56 eur or 2.58 pct at 21.15, extending yesterday's drop as it tries to correct costly problems at its Airbus unit.
   
Gaz de France, down 0.52 eur or 1.65 pct at 30.90. As its merger with Suez looked set to proceed, GDF was reportedly angry that Suez agreed unilaterally with Belgium to trim the merged entity's power generating capacity.
   
Suez, down 0.38 eur or 1.10 pct at 34.30

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FRANKFURT - Market data at 9.28 am   

Major indices:
   
DAX 30 - up 42.77 points or 0.71 pct at 6,089.14
MDAX - up 59.94 points or 0.70 pct at 8,596.90
TecDAX - up 6.99 points or 1.06 pct at 665.61
DAX future - up 39.5 points or 0.65 pct at 6,130.50

Major risers:
   
ThyssenKrupp, up 0.83 eur or 3.16 pct at 27.07 eur, after merger speculation
   
Deutsche Bank, up 1.55 eur or 1.60 pct at 98.41, after reports that the company is expected to raise profit targets 
   
Deutsche Lufthansa, up 0.24 eur or 1.41 pct at 17.27
   
Infineon Technologies, up 0.12 eur or 1.26 pct at 9.66
   
SAP, up 1.91 eur or 1.21 pct at 159.65

Major decliners:
   
MAN, down 0.97 eur or 1.42 pct at 67.47
   
Hypo Real Estate, down 0.14 eur or 0.29 pct at 48.92
  
E.ON, down 0.13 eur or 0.14 pct at 93.52

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