UK/Euro Financial Market Daily Morning Briefing 12-10-2006

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London shares firm in early deals; mining strength offsets Corus weakness

Leading shares were higher in early deals, making headway after a flat open and following a late rebound on Wall Street yesterday, with strength in the UK mining sector offsetting a negative performance from Corus, dealers said.

At 9.01 am, the FTSE 100 index was 17.8 points higher at 6,091.3, after closing up just 0.8 points at 6,073.5 yesterday, while the broader indices also got off to a positive start.

Overnight in the US, the Dow Jones ended 15.10 points lower at 11,852.10, while the Nasdaq composite index finished 7.16 points lighter at 2,308.27 and the S&P 500 index closed off 3.45 points at 1,349.95.

US stocks fell sharply Wednesday afternoon after reports that an aircraft crashed in New York City, but rebounded when the government said the incident did not appear to be the result of terrorism.

However, sentiment remained negative after Alcoa reported earnings per share of 61 cents during the three months ended Sept 30, missing the consensus forecast of 79 cents.

Concerns over the trend of the US economy also resurfaced after minutes from the Federal Reserve meeting in September showed that a slowing economy and falling energy prices guided its decision to hold interest rates steady.

These uncertainties also trickled into Asian trade this morning, with Hong Kong's Hang Seng ending the morning session down 18.02 points at 17,844.77, and Japan's Nikkei closing 31.76 points weaker at 16,368.81.

Meanwhile, crude oil prices dropped to their lowest levels for the year in Asian trade as the market discounted news of a planned cut in output by the Organization of Petroleum Exporting Countries.

New York's main contract, light sweet crude for November delivery, was down 1 cent at 57.58 usd a barrel in late US trade, having slipped as low as 57.48, a level not seen since Dec 27, 2005, while Brent North Sea crude for November lost 7 cents to 58.58 usd.

In London today, the UK mining sector rebounded after a weak performance yesterday, bolstered by commodity prices back on the rise this morning.

Rio Tinto took on 40 pence at 2,615, Xstrata rose 28 pence to 2,181, Vedanta Resources was up 29 pence at 1,349 and Lonmin increased 39 pence to 2,676.

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ICAP was also in fine fettle, gaining 7 pence to 525, as investors cheered The Business Magazine's naming of its chief executive Michael Spencer as the most powerful person in the City.

On the reporting front, Sage Group had a volatile start as investors digested its full-year trading update.

The shares were up 3 pence at 249 in early deals after the UK's biggest accounting software supplier said in a trading statement that it is on track to meet the full-year consensus forecast of pretax profit of 220 mln stg on full-year revenue of 927 mln stg.

Bridgewell Securities retained its 'overweight' stance on the stock, but said it imagines the market might have expected numbers to be a little ahead of consensus.

West LB repeated its 'hold' advice, remaining cautious as it said Sage's pretax profit of 220 mln stg was below the broker's 227 mln forecast.

Having also issued a trading update today, SABMiller was in the balance, just 1 pence firmer at 1,036, after the international brewer said its financial performance is in line with expectations for the six-month period to end-September, with lager sales volumes up 9 pct.

However, the group said its Miller Brewing operations in North America continued to struggle because of competitive price reductions and pressure from the import beer segments. Sales to retailers fell 3.6 pct on a comparable basis.

WestLB downgraded the brewer to 'hold' from 'add', saying volume growth in the company's high value markets such as the US and South Africa is disappointing, with both regions experiencing a slowdown.

On the downside, Corus was the main casualty, down 6-3/4 pence at 471-1/4, on the back of reports Tata Steel is weighing up the possibility of a "pure merger" as opposed to a straight takeover of the Anglo-Dutch group, according to reports in the Hindu Business Line, citing a global merchant banking source.

The source is quoted as saying discussions between the two companies are at a "fairly advanced stage".

The report also says, in the case of a merger, Tata Group would be looking at a 20 to 23 pct stake in the combined holding, while, in a buyout scenario, its valuation of Corus ranges between 8 bln usd and 8.5 bln usd.

Elsewhere, BP shares slipped 2 pence to 574-1/2 after The Times reported the oil giant has been forced to apologise for delays in handing over documents to a congressional committee.

In a double blow, Lord Browne, chief executive of the British oil giant, has been ordered to give evidence about the fatal refinery blast in Texas, the paper said. BP plans to appeal against the order, issued by a State District judge.

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On the second tier, upbeat broker comment propelled Admiral Group into pole position, 37-1/2 pence better at 913-1/2, as Merrill Lynch increased its price on the UK motor insurance group to 945 pence and raised 2007-08 estimates by 6-9 pct, dealers said.

In a note to clients, the broker said it views a cycle upturn as likely before the end of 2007 and has now built into its figures an acceleration in policycount growth from 2008.

It added its revised estimates also reflect a more favourable reinsurance agreement with Munich Re, as it reiterated its 'buy' advice'.

Similarly, LogicaCMG was 3-1/4 pence higher at 172-1/2, thanks to a Goldman Sachs upgrade 'buy' from 'neutral', with the broker telling clients it now believes the present price overstates the risks from the deal and added it feels the Unilog integration is progressing well.

WH Smith was another strong riser, with the shares taking on 9 pence at 384, after the newspapers, books and stationery retailer reported slightly better-than-expected full year profits, prompting Merrill Lynch to stick to its 'buy' advice.

But the group, which demerged its news distribution business, Smiths News,  at the end of August, cautioned consumer demand for its products "remains subdued".

WH Smith's underlying pretax profit came in at 51 mln stg, up from 39 mln previously, but said for the five weeks to October 7, retail like-for-like sales were down 3 pct.

Meanwhile, DS Smith added 1 pence at 156-1/4 as it said its full-year outlook remains unchanged from that issued in its September AGM statement when it warned profits in the first half of 2006/07 will be significantly lower than last time.

The group added today, however, it will see an improvement in second-half performance due to "strategic and operational actions" combined with better pricing in the packaging market.

On the downside, Carphone Warehouse stood out, down 3-3/4 pence at 356-1/2 following yesterday's stellar share price performance, and with Deutsche Bank today downgrading the group to 'hold' from 'buy' with a raised price of 380 pence on valuation grounds.

On the macroeconomic front today, US investors will be watching the nation's trade deficit figure this afternoon, which is expected to have widened in August to 68.5 bln usd from 68 bln usd.

Weekly jobless claims, meanwhile, are seen rising to 312,000 from 302,000 in the prior week.

In the UK, the third-quarter economic survey from the British Chambers of Commerce is expected to paint a fairly solid picture within both the manufacturing and services sector, with the confidence balances holding up from the previous three months.

For a forward diary of events click here

For a US summary at the close of trading yesterday click here

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Major indices:

CAC-40 up 23.19 points at 5,336.38
SBF-80 up 1.25 at 6,067.49
SBF-120 up 14.51 at 3,7861.65

Major gainers:

-Suez, up 0.79 eur or 2.3 pct at 35.40 on a report that financier Francois Pinault is ready to bid 18 bln eur to buy the water, waste and energy services businesses of Suez, as part of the proposed Suez/GDF merger.

-Thomson, up 0.50 or 3.9 pct at 13.18 after confirming its 2006 operating margin target of 8.5 pct after posting an 8.2 pct rise in third quarter sales to 1.423 bln.

-Vivendi, up 0.07 or 0.3 pct at 28.49 after French daily La Tribune said a number of investment funds, including KKR and Permira, are looking at acquiring a large stake in order to push for a break-up, initially with the sale of its NBC Universal and Maroc Telecom stakes.

Major losers:

-Peugeot, down 1.25 or 2.9 pct at 41.70 as its Faurecia unit warned it would post an operating loss in the second half of this year alongside its release of third quarter sales. Peugeot was also downgraded to 'conviction sell' from 'neutral' at Goldman Sachs, with a 37 eur price.

-Faurecia, down 1.66 or 3.7 pct at 43.85

-Carrefour, down 1.02 or 2 pct at 49.93 as profit-taking followed its release of third quarter sales, up 7.3 pct to 22.1 bln on like-for-like comparisons and broadly in line with expectations; the stock hit a 4-year high a few days ago.

Most active stocks:

-Societe Generale, 165.6 mln euros of volume, up 3.50 or 2.7 pct at 133.10 as investors continued to buy heavily ahead of tomorrow's close of a 2.4 bln eur share capital increase. Investors holding 20 shares will be able to buy 1 new share for 108 eur.

-Suez, 108.7 mln euro.

-Credit Agricole, 41.3 mln eur, down 0.24 at 33.46 and extending yesterday's 5.1 pct drop after it announced plans for a 4 bln eur share capital increase to fund its purchase of 654 retail banking branches in

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Major indices:

AEX 491.46, up 1.45 point
AMX Midcap  617.63, up 2.51 points
Government bondsbroadly lower

Major gainers:

-ASML climbed 1.6 pct to 19.10 as UBS upgraded the chip equipment maker to to 'buy' from 'neutral' with an increased price target of 24 eur versus 19, and JP Morgan rated it 'overweight'

-LogicaCMG advanced 2.4 pct at 2.56 as the stock was upgraded to 'buy' from 'neutral' by Goldman Sachs and added to its 'Conviction Buy List'

-TomTom firmed 1.43 pct at 31.95, Getronics rose 1.15 pct at 5.29

-CSM put on 2.52 pct at 26.45 amid positive broker reports following the company's analyst day

-BAM was 2.23 pct higher at 15.13 and Heijmans rose 1.34 pct to 37.89 after the Dutch parliament earlier this week gave the green light to the Maasvlakte 2 project for expansion of the port of Rotterdam which is expected to cost some 4 bln eur

-BAM was also supported by news it and Draka, which was up 2.2 pct at 17.20, won a joint order to construct a new fibreoptic cable network in Amsterdam with a total value of around 30 mln eur

-Stork gained 0.43 pct at 40.17 ahead of the start of its sharehodlers'meetimg this afternoon at which the company's break-up plan is dicussed  

Major decliners:

-SBM Offshore eased 0.63 pct at 21.97

-Akzo Nobel shed 0.38 pct at 47.47

-Unilever gave up 0.1 pct at 19.64, Ahold was off 0.12 pct at 8.33

-Corio slipped 0.09 pct at 56.50 amid news it appointed former TNT CFO Jan Haars as its new chief financial officer

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FRANKFURT (AFX) - Major indices:

DAX 30 - up 12.17 points or 0.20 pct at 6,131.62
MDAX - up 17.40 points or 0.20 pct at 8,650.86
TecDAX - up 4.40 points or 0.65 pct at 677.75
DAX future - up 9.0 points or 0.15 pct at 6,168.50

Major risers:

-MAN, up 2.31 eur or 3.43 pct at 69.65, after the truck maker said it now holds 14.27 pct of Scania voting rights, dealers said.

-Siemens, up 0.59 eur or 0.88 pct to 67.50 after the industrial conglomerate said it will merge its SBS and software businesses into a new unit.

-Deutsche Post, up 0.18 eur or 0.85 pct at 21.33.

-ThyssenKrupp, up 0.21 eur or 0.76 pct at 27.91.

-Commerzbank, up 0.15 eur or 0.55 pct at 27.30.

Major fallers:

-Postbank, down 0.57 eur or 0.95 pct at 59.24

-Bayer, down 0.29 eur or 0.72 pct at 40.00

-Metro, down 0.33 eur or 0.70 pct at 46.91

-Continental, down 0.59 eur or 0.64 pct to 91.85

-Lufthansa, down 0.52 eur or 0.79 pct at 66.52 eur, after the company said it will cut its long-haul fuel surcharge by 10 eur per flight.

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