UK/Euro Financial Market Daily Morning Briefing 13-07-2006

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London shares weak in early deals after NY, Asia drops;Aviva launches bid

UK blue chips fell back in early deals this morning after big drops overnight on Wall Street and in Asia as oil prices moved back to record highs, with Aviva weak after confirming plans to acquire AmerUs for 2.0 bln stg funded by a 900 mln stg rights issue, dealers said.
   
At 9.09 am, the FTSE 100 index was 56.26 points lower at 5,804.4, with all the broader FTSE indices weaker as well.
   
Early volume was slow, with 231 mln shares changing hands in 35,267 deals.
   
Overnight on Wall Street, the DJIA closed 121.35 points lower at 11,013.42, while the Nasdaq composite index finished 38.62 points lower to 2,090.24 as a broker downgrade of PC giant Dell and higher oil prices aggravated worries about a shaky start to second-quarter earnings.
   
Oil prices jumped back above 75 usd a barrel to near record levels in Asian trade today after Israel bombarded Lebanon in a new twist to the Middle East conflict.
   
The Israeli strikes, which followed the snatching by Hezbollah gunmen of two Israeli soldiers, compounded geo-political tensions arising from Iran's defiance of Western pressure to rein in its nuclear ambitions, dealers said.
   
The selling continued in Asia; the Nikkei 225 index ended 151.37 points lower at 15,097.95 reflecting the New York drop and with most investors on the sidelined as they await the outcome tomorrow of the meeting of the Bank of Japan's policy board.
   
Meanwhile, the Hang Seng ended 216.73 points weaker at 16,305.48 amid talk that China's central bank might raise interest rates soon.
   
In London, shares in Aviva shed 9 pence at 704 after the group confirmed the acquisition of US life insurer AmerUS Group for 1.6 bln stg in cash, to be financed by a 900 mln stg equity placing, internal resources and external debt.
   
The placing of 129 mln shares, representing around 5 pct of Aviva's share capital, will be at 700 pence a share via a fixed price accelerate book-build.
   
Aviva also gave a trading update saying it had achieved a strong performance in the first half of the year.
   
In response, Merrill Lynch reiterated its 'neutral' stance on Aviva and said the price is in line with its expectations but cautioned AmerUs' embedded value, the anticipated cost savings of 45 mln stg per year and the funding mix are all slightly disappointing.

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Other insurers were weaker in sympathy, with Legal & General losing 2-1/2 pence at 125-1/4, Prudential down 8-1/2 pence at 567, and Friends Provident off 1-3/4 pence at 180 and pressured too by the drop in equity markets.
   
Heavyweight mining issues fell back after yesterday's gains in spite of firmer crude prices, unsettled by the geo-political uncertainties -- Kazakhmys dropped 38 pence lower to 1,201, Antofagasta shed 12-1/2 pence at 433, BHP Billiton lost 25 pence at 1,069, and Rio Tinto fell back 65 pence to 2,820.
   
Similarly oil majors failed to benefit from the record crude price, with Royal Dutch Shell down 8 pence at 1,922, BG Group off 3-1/2 pence at 730, and BP down 2 pence at 638 unsettled again by yesterday's Goldman Sachs downgrade.
   
Comment from the same broker today blighted BT Group shares, down 3-1/2 pence at 232-3/4, with Goldman cutting its stance to 'sell' from 'neutral' on valuation grounds.
   
And shares in AstraZeneca shed 42 pence at 3,211 after being downgraded to 'neutral' from 'overweight' by HSBC also in a valuation call.
   
There were only two blue chip risers in early deals.
   
Amvescap stood out, up 1-1/2 pence at 481-3/4 after being upgraded to 'hold' from 'reduce' by Dresdner Kleinwort with a 505 pence target, following its recent Funds Under Management (FuM) update.
   
The broker noted that on July 11 Amvescap disclosed FuM of 413.8 bn usd as at the end of June and feels that with long-term funds at H1 increasing 0.34 pct on end-March, it may have weathered the equity market storm relatively well.
   
Intercontinental Hotels also found support, up 1-1/2 pence at 955-1/2 as investors warmed to news it sold seven branded hotels for 440 mln stg.
   
The sale has been agreed with Morgan Stanley Real Estate fund and InterContinetal has secured 30 year management contracts on the properties, with options to extend for up to 20 years more.
   
In response, UBS reiterated its 'buy' advice, saying as with previous disposals, the statement claims proceeds will be used for investment, returns to shareholders and paydown of debt.
   
On the second line, Emap was the biggest casualty, shedding 12 pct in value with a 100-1/2 pence drop to 736-1/2 after the magazine publisher and radio group gave a cautious trading statement, prompting analysts to cut their full-year forecasts.

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Emap, home to magazines including FHM and Closer and radio stations Kiss and Magic, warned that it expects half-year revenue to fall slightly and full-year revenue to be flat amid difficult trading conditions.
   
In reaction, analysts cut their Emap forecasts, highlighting the cautious outlook in the trading statement.
   
Seymour Pierce said it expects to cut its Emap forecast for the current year by about 3-4 pct. Bridgewell Securities, said the trading statement sounded an unexpected "extra note of caution," but reiterated his 'buy' recommendation Emap.
   
Elsewhere, Jardine Lloyd Thompson shed 29-1/2 pence at 360 after independent UK insurance broker Heath Lambert Group said it had ended bid discussions with the firm.
   
The Times reported today that other brokers may be interested in buying Heath Lambert.
   
And EMI Group shares lost 19 pence at 287 amid talk an EU court has ruled that the European Commission must review the Sony BMG merger, casting some doubt on a possible link-up of EMI and Warner Music.
   
There were few features among the mid cap gainers. Invensys rallied after falls yesterday following the placing of the rump of its recent rights issue, adding 0-1/4 pence at 19-1/4.
   
And Computacenter rallied after yesterday's mixed trading update, taking on 0-1/2 pence at 246-1/2.
   
There is not much of a macro focus today, with only second-quarter UK economic forecasts from the British Chamber of Commerce due for release.
   
Across the Atlantic, the latest initial weekly jobless claims will be released today, together with the June Federal budget.

UK 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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PARIS - Market data at 9.36 am:

Major indices:
   
CAC-40 down 63,88 points or 1.29 pct at 4,877.85
SBF-80 down 54.45 points or 0.98 pct at 5,529.17
SBF-120 down 44.08 points or 1.23 pct at 3,533.16

Volume: 330 mln eur
1 CAC-40 stock up
38 CAC-40 stocks down
(Arcelor temporarily suspended from CAC-40)

Major gainers:
   
Carrefour, up 0.06 eur or 0.13 pct at 46.81, after second quarter sales exceeded forecasts.
   
Technip, up 0.09 eur or 0.21 pct at 43.14. Oil stocks were outperforming the market, although most were still showing losses, as crude prices rose amid heightened Middle East tensions.

Major losers:
   
Axa, 39 mln eur, down 0.48 eur or 1.86 pct at 25.37. It was reported to be among 13 bidders for the Serbian insurer DDOR Novi Sad.
   
STMicroelectronics, down 0.22 eur or 1.85 pct at 11.67
   
Lafarge, down 1.75 eur or 1.83 pct at 94.00

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AMSTERDAM - Market data at 10.12 am:

Major indices
   
AEX index             435.95, down 4.48 points
AMX Midcap index      584.52, down 5.58 points
Govt bonds            unchanged to slightly higher

Major losers:
   
Aegon led blue chip fallers, losing 2.44 pct to 12.80, while Fortis slipped 1.62 pct to 26.77, ING gave up 1.23 pct to 30.56 and ABN Amro was 1.41 pct lower at 20.96. Van der Moolen tumbled 4.26 pct to 5.17
   
Hagemeyer shed 2.08 pct at 3.77, Buhrmann eased 1.75 pct to 10.66
   
Philips was down 1.68 pct at 22.81, TomTom fell 1.92 pct to 28.55
   
       
Major gainers:
   
There were no gainers among AEX stocks, while construction company BAM, up 0.43 pct at 16.22, and property fund Wereldhave, 0.26 pct higher at 78.30, were the only midcap gainers
   
Local market listed Endemol added 0.15 pct at 13.0 as Delta Lloyd initiated coverage of the stock with a 'buy' rating and 15 eur price target

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