UK/Euro Financial Market Daily Morning Briefing 08-08-2007

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London shares open up; NY closes higher; Royal & Sun Alliance gains UPDATE

LONDON - Leading shares opened higher as Wall Street closed ahead last night after the FOMC left interest rates on hold with Royal & Sun Alliance a major gainer in the blue chips after earnings news.

At 9.08 am the FTSE 100 index 41.0 points higher at 6,350.7 having closed yesterday 119.7 points ahead at 6,308.8, while the broader indices were also higher.

Volume was average with 367 mln shares changing hands in 103,953 deals.

"The market is regaining ground following the Fed's decision to hold interest rates giving investors confidence that the FOMC can contain concerns surrounding credit problems on the sub prime market," said a strategist at BGC
Partners.

However, around 13 points was knocked off the FTSE this morning with a slew of stocks going ex-dividend.

These included Lloyds TSB, Reuters, Reckitt Benckiser, HBOS, Astrazeneca, Kelda, BG Group, Royal Dutch Shell, BAT and Cable & Wireless.

Last night on Wall Street, stocks made a late-day surge as the decision by the FOMC to hold interest rates at 5.25 pct was seen as a sign the economy was not threatened by turmoil in the credit markets.

The Dow Jones Industrial Average index gained 35.52 to 13,504.30, while the the Standard & Poor's 500 index rose 9.04 to 1,476.71, and the Nasdaq Composite index rose 14.27 to 2,561.60.

Meanwhile, looking at US economic news today, wholesale inventories for June are expected to rise 0.4 pct, continuing the trend from May's 0.5 pct increase, when most industries reported higher inventories.

On Asian markets, the Hang Seng index ended the morning up 393.39 points at 22,301.38, while the Nikkei 225 index ended the morning 99.36 points higher at 17,021.13

In Asian trading hours, oil prices weakened in morning trade as speculative funds exited the market amid concerns problems in the housing market could slow US growth.

New York's main contract, light sweet crude for September delivery, was down 13 cents at 72.29 usd a barrel from 72.42 usd in late US trade Tuesday.

Brent North Sea crude for September delivery fell 37 cents to 71.43 usd.

In UK economic news, the Bank of England is predicted to signal the door remains open for one more interest rate hike when it releases it latest round of projections today.

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While that is widely expected to be the central message, the bank may also indicate that growth and inflation may fall short if recent financial market troubles spread.

"We expect the BoE to signal that it is happy with markets looking for UK interest rates to rise to 6 pct but not beyond," HSBC analysts said.

The central bank had its forecasts to hand when it kept the base rate unchanged on August 2 at 5.75 pct -- in itself an indication that the projections are not overly hawkish.

Having lifted borrowing costs 5 times since August last year, the central bank will want to wait to see how far it has been able to snuff out inflation. Its concerns are all the more acute now as the woes of the credit market look
like they are here to stay, possibly reducing the level of available credit and denting activity as well as demand.

If anything, the turmoil in financial markets has helped erase the chance of a second rate hike, said UBS economists.

Turning to the UK market, Royal & Sun Alliance was up 3.3 at 139.3 after the group reported a fall in first half operating profit, dropping to 403 mln stg from 416 mln stg this time last year.

The result beat analysts' expectations of a fall in profit to 352 mln stg, according to a consensus forecast supplied by the company.

And, Friends Provident gained 2-1/2 at 195 after the group said that its underlying pretax profit for the first half came in at 264 mln stg, up from 247 mln stg in the same period last year, while UK life and pensions sales rose 12 pct to 2.257 bln stg.

Friends also said that the proposed Resolution merger would "enhance growth prospects and deliver shareholder value."

Panmure Gordon maintained its 'hold' stance on the group.

Also in earnings news ITV was 1.6 higher at 107.35 as the group said revenues at its flagship ITV1 channel would likely rise in the third quarter as the UK TV ad market returns to growth.

Unveiling a steep fall in first-half profits, ITV said net advertising revenues at ITV1 would likely rise by 1 pct in the third quarter of 2007, with ad sales across all of its digital and terrestrial channels up 4 pct.

Citigroup said ITV's H1 profitability was slightly better than it had expected.

And Man Group ticked up 18 at 588-1/2 after reporting that the net asset value of AHL Diversified Futures Ltd as at the close of business yesterday was 31.08 usd, down 0.19 pct from last week and up 13.5 pct over the last 12 months.

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Broker comment also helped push the market higher, WH Smith gained 6-3/4 to 394-3/4 after HSBC upgraded the group to 'neutral' from 'underweight' with an increased target of 425 pence from 404.

Elsewhere, Next was up 13 at 1,924-1/2 after HSBC upgraded the group to 'neutral' from 'underweight' with a target of 1,960 pence versus 2,005.

And, Scottish & Newcastle edged 6-1/2 to 589-3/4 after UBS upgraded the group to 'buy' from 'neutral' with a raised target of 680 pence from 650 pence.

Turning to the downside, technology company Smiths Group was the biggest faller down 18 at 1,019 after the group said it expects its pretax profit for the year ended July 31 to come in at around 340 mln stg, around 7 pct up on last year's figure.

In a trading statement the company put the likely increase down to lower interest expenses and improved pensions financing.

Looking at the second liners, Aquarius Platinum gained 76 at 1,401 after the group reported record production and net profit for the full year and said it is targeting a further 15 pct increase in production for the coming financial year.

The company also announced a 3 for 1 share split to increase liquidity and affordability for investors, which it will put to shareholders at its annual general meeting in November.

Net profit in the full year to June 30 rose 119 pct to 187.2 mln usd onrevenues up 67 pct to 710.8 mln usd.

In M&A activity, Emap was 33 higher at 872 after the Telegraph reported that Guardian Media Group and private equity firm Apax Partners are in talks to launch a 2 bln stg bid for the group.

Bridgewell Securities reiterated its 'overweight' stance on the group.

Broker generated news also helped the second liners with Rentokil Initial gaining 6 at 163-1/4 after Merrill Lynch upped its stance on the group to 'buy' from 'neutral' and maintained its 174 pence target but said this could
rise as high as 195 pence in a best-case scenario.

The broker said that a 5 pct dividend yield, may translate into a potential return of 17 pct in a year.

Looking at the downside, FKI was the biggest faller down 7-1/2 or 7.03 pct at 99-1/4 after the group said talks for its acquisition have ceased and that it is no longer in the offer period.

On May 31, the UK engineering group had said it was approached with an offer of around 130 pence a share. The company did not specify the identify of its potential suitor.

Diary of Events

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

US Summary

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

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Stockholm shares were higher in early trade, supported by the Fed's apparent lack of concern about the US economy, with Securitas Systems sharply outperforming after its better-than-expected second quarter results.

At 10.10 am, the OMX Stockholm index was up 1.18 pct at 397.42, while the OMX Stockholm 30 was up 1.18 pct at 1,230.92. Turnover amounted to 3.96 bln skr.

"We got positive signals from the Fed, who said the economy looks strong, that it isn't concerned about the credit markets, and that inflation is what it is most concerned about. They, if anybody, should know what the situation is," a dealer said.

Ericsson B was up 0.95 pct at 25.48.

Among the telecom operators, TeliaSonera was up 0.98 pct at 51.50, and Tele2 B up 1.28 pct at 118.75.

Securitas Systems was up 6.81 pct at 25.10. Along with the better-than-expected profits, it said it now expects organic sales growth for 2007 to be somewhat better than 2006. Previously, organic sales growth for 2007 was expected to be in line with 2006.

"It was a good report. They hiked the outlook, and they have had some weak reports previously, but now it was good, both in terms of growth and profits," Bjoern Enarson, an analyst at Carnegie said.

Trelleborg B was up 1.85 pct at 165.50. Deutsche Bank raised its stance on shares in Trelleborg to 'hold' from 'sell', but lowered the target for the group to 175 skr from 195 skr following a sharp fall in the share price in the last four weeks in the wake of its Q2 report.

In a note to clients, the broker said the company's prospective 4 pct dividend yield should limit the downside to the stock at this time.

The broker also noted that the uncertainty stemming from ongoing cartel investigations is likely priced in already, while earnings risks related to raw material prices have decreased.

Among other shares heavily traded, Sandvik was up 2.22 pct at 138.50, Swedbank A up 2.65 pct at 252, still benefiting from yesterday's strong report, and Hennes & Mauritz B was up 0.88 pct at 400.

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DAX - up 53.29 points, or 0.71 pct, at 7,566.95

MDAX - up 147.73 points, or 1.43 pct, at 10,472.98

TecDAX - up 13.28 points, or 1.48 pct, at 908.64

DAX futures - up 7.00 points, or 0.09 pct, at 7,607.00

Major Advancers:

Adidas, up 1.42 eur or 3.29 pct higher at 44.54, as investors cheered second-quarter numbers released by the sports equipment manufacturer earlier oday which came in generally higher than market expectations.

Infineon, up 0.36 eur or 3.24 pct at 11.46

Bayer, up 1.40 eur or 2.73 pct at 56.25, continuing gains after releasing consensus-beating results yesterday and after UBS raised its price target to 72 eur from 70 eur and reiterated its 'buy' rating

Commerzbank, up 0.741 eur or 2.29 pct at 31.78, as the stock is benefiting from a two-day long turnaround in financial stocks and ahead of its releasing second-quarter results tomorrow

Allianz, up 3.06 eur or 1.94 pct at 131.06

Major Decliners:

Volkswagen, down 2.22 eur or 1.58 pct at 138.65, correcting from recent strong gains

Lufthansa, down 0.19 eur or 0.89 pct at 21.08

MAN, down 0.39 eur or 0.38 pct at 102.62

BASF, down 0.21 eur or 0.22 pct at 93.95

Merck, down 0.20 or 0.21 pct at 94.78

Other Major Movers:

Deutsche Boerse, up 1.57 eur or 1.92 pct at 82.32, after Citigroup raised it price target to 106 eur from 102.50 while reiterating its 'buy' rating

MDAX-listed Altana, up 0.10 eur or 0.60 pct at 16.90, as market traders said the pharmaceutical company released second quarter figures at or perhaps slightly below expectations.

MDAX-listed Douglas, up 0.06 eur or 0.14 pct at 44.31, , as the company said its third-quarter pretax profit fell to 2.7 mln eur, down from 7.9 mln eur
in the year-earlier period, due to acquisition

MDAX-listed MLP, up 0.23 eur or 1.88 pct at 12.49, with investors appearing to cheer the financial services provider's confirmation of its 2007 outlook and overlook second-quarter figures which traders said came in a bit lower than market expectations

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MAJOR INDICES

AEX 526.82, up 1.04 pct

AMX Midcap 725.11, up 0.76 pct

Government bonds lower

MAJOR GAINERS

ING surges 4.29 pct to 32.08 eur as Q2 tops forecasts, co says sees no material impact from credit market turbulence

Aegon up 3.06 pct at 13.49

Arcelor Mittal 1.56 pct stronger at 45.58

Corio 2.02 pct firmer at 53.06

Fugro 2.16 pct firmer at 46.34

Crucell 2.54 pct higher at 15.72

Univar gains 1.45 pct at 50.25 on news CVC takeover will proceed

MAJOR DECLINERS

Heineken down 0.86 pct at 44.02

SBM Offshore off by 0.24 pct at 28.62

TomTom loses 1.02 pct at 44.84

Nutreco down 1.86 pct at 55.55

Vopak 0.65 pct weaker at 41.43

Arcadis down 4.78 pct at 61.39 after Q2 sales and net profit beat forecast while analysts say revised full-year outlook is too conservative

Closing Forex Rates

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