UK/Euro Financial Market Daily Morning Briefing 26-03-2007

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London shares mixed in early deals, Iranian tension offsets M&A activity

Leading shares were modestly higher in early trade as excitement surrounding merger news within the UK housebuilding sector and talk of a possible rival bid for Alliance Boots was tempered by jitters surrounding Iran's nuclear ambitions, dealers said.
   
At 9.00 am, the FTSE 100 was up 8.1 points at 6,347.9, having recovered from an earlier low of 6,327.2. The broader indices were mostly higher. Early volume was moderate with 271 mln shares trading in 50,527 deals.
   
On Friday, the Dow rose 19.87, or 0.16 pct, to 12,481.01, while the Standard & Poor's 500 index advanced 1.57, or 0.11 pct, to 1,436.11, and the Nasdaq composite index fell 2.81, or 0.11 pct, to 2,448.93.
   
Over in Asia, the Nikkei 225 index closed up 41.35 points at 17,521.96, while over in Hong Kong the Hang Seng index closed its morning up 104.06 points at 19,796.70.
   
Looking at commodities, the tension in Iran and kidnappings in Nigeria pushed oil prices to their highest level for the year, well above 62 usd, in Asian trade.
   
Markets were expected to remain jittery following news that Iran would limit cooperation with the UN's nuclear watchdog and vowed not to halt its atomic program "even for one second" following new financial and arms sanctions.
   
Tensions between the British Government and Iran were pushed further into the spotlight after Iranian officials said it was considering charging 15 British sailors and marines with illegally entering its waters.
   
In London this morning UK housebuilders dominated the early risers following news that George Wimpey and Taylor Woodrow have agreed to merge their respective businesses, which brokers thought could encourage further sector consolidation.
   
Taylor Woodrow was up over 18 pct, or 75 pence at 496, while Wimpey rallied 10 pct to 699 pence. According to analysts, the deal appears logical and could provide a catalyst for either rival bids for either of the protagonists or spark further mergers among its peer group.

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Goldman Sachs said it believes the merger would create good regional overlap in both the UK and US and sees potential for synergies to exceed 50 mln stg.
   
The broker thought that Persimmon may also be interested in looking at a Taylor Woodrow cash bid, believing that it has the financial muscle to complete a deal.
   
Among front line builders, Persimmon took on 38 to 1,438 while Hammerson rose 17 to 1,761 amid press reports private equity firm GE Real Estate is teaming up with French property giant Unibail to launch a break-up bid.
   
Among mid cap peers, Bellway pushed 62 better to 1,574, Bovis gained 43 to 1,185 and Redrow jumped 22 to 629.
   
Remaining on the M&A theme, Alliance Boots took on 9 to 1,045 after press reports suggested Terra Firma's Guy Hands is mulling a possible bid for the company.
   
The firmer tone to crude prices helped lift Royal Dutch Shell 13 to 1,683 and BP 4-1/2 to 546. On the flip side, Carnival dipped 7 to 2490 while BA eased 2 to 516.
   
On a more negative note, Royal Bank of Scotland slipped 27 to 2,027 after The Daily Telegraph reported that it had received support from two "leading" shareholders to compete with Barclays in bidding for ABN Amro.
   
Barclays was also lower, with Dresdner Kleinwort downgrading its stance to 'hold' from 'add' after the stock rallied by around 12 pct in just four days on M&A hopes.
   
The broker noted that many investors assume the lack of synergies between the two banks means the deal is bound to fail and are awaiting the intervention of a third party, but Dresdner Kleinwort said the market should not underestimate Barclay's CEO John Varley's ambition to make Barclays one of the five biggest global hands.
   
On the second line but away from the housebuilders, Minerva slipped 18 to 369 as lack of new news on the group's flagship projects at St Botolph's and The Walbrook offset a swing to interim pretax profit.
   
Citigroup said it remains optimistic that Minerva's developments will be successfully let, and said management's outlook appears positive.

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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 Friday's close of trade, click here

Amsterdam

Amsterdam shares AFX at a glance outlook

Forthcoming Events

SBM Offshore final FY results

Weekend Press

Major investors in Barclays, like Axa and Threadneedle, have publicly questioned the logic of the planned 80 bln stg takeover of ABN Amro (The Independent)

Toscafund, a stakeholder in ABN Amro, is willing to accept a quick sale of the Dutch bank to Barclays Plc (The Sunday Telegraph)

Today's Press

Belgium attempts to lure Dutch pension funds into investing there

Royal Bank of Scotland Group and Citigroup Inc may bid for ABN Amro Holdings NV, rivaling Barclays' offer, Handelsblatt daily reported, citing sources within the financial industry (Handelsblatt)

Company News

RABOBANK has confirmed possible sale of investment bank Alex; Binck Bank has said it would take "a serious look" at buying the competing company

Publishing group Wolters Kluwer NV said it will sell its Education division to UK investment fund Bridgepoint Capital for 774 mln eur -Crucell and DSM sign PER.C6 research licensing deal with Taiwan's DCB.

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Paris shares AFX at a glance outlook

Forthcoming Events
   
Today
 
Nil

Tomorrow
   
Neopost FY results, after market
   
Haulotte FY results
   
Beneteau Q2 sales

Today's Press
   
Thales consortium wins 60 mln eur IT contract for Paris hospital (Les Echos)
   
Nexity, Credit Foncier propose new structure for merger
   
Company News
   
Sony Ericsson, Safran's Sagem agree mobile phone production JV
   
Atos Origin to 'explore strategic options', appoints Rothschild, Goldman Sachs
   
Areva denies unit supplied Iran with enriched uranium
   
Vivendi class action suit accepted by US court
   
Credit Agricole ready to swap Intesa stake for assets
   
Carrefour says Arnault, Colony to join supervisory board; Halleys deny exit plan

Market Sentiment
   
Michelin upgraded to 'buy' vs 'hold' at Citigroup

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FRANKFURT - market data at 9.38 am

Major indices
   
DAX - down 5.32 points, or 0.08 pct, to 6,893.74
MDAX - up 28.79 points, or 0.28 pct, to 10,132.93
TecDAX - up 1.10 points, or 0.13 pct, to 851.74
DAX futures - down 8.50 points, or 0.12 pct, to 6,950.00

Major losers
   
Volkswagen, down 1.57 eur, or 1.33 pct, at 116.13, Porsche said it intends to increase its stake in the car maker to 30.9 pct to thwart any hostile bids for VW and as Deutsche Bank lowered its stance on the stock to 'sell' from 'hold'.
   
Metro, down 0.61 eur, or 1.13 pct, at 53.37
   
Hypo Real Estate, down 0.33 eur, or 0.69 pct, at 47.67
   
Deutsche Lufthansa, down 0.13 eur, or 0.64 pct, at 20.33 as oil prices are rising again due to fresh tensions with Iran.
   
Allianz, down 0.97 eur, or 0.62 pct, at 155.34.
   
Major gainers
   
Continental, up 1.59 eur, or 1.65 pct, at 97.99
   
BMW, up 0.43 eur, or 0.98 pct, at 44.30 following reports that the car maker expects to increase productivity by 10 pct in 2007 and 5 pct in the long term.
   
Siemens, up 0.76 eur, or 0.93 pct, at 82.90
   
Adidas, up 0.21 eur, or 0.53 pct, at 40.02
  
DaimlerChrysler, up 0.15 eur, or 0.24 pct, at 62.15 as JP Morgan removes the stock from its analyst focus list.

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US dollar higher against yen, euro; awaits US Feb new home sales

SINGAPORE - The dollar crept higher in late Asian trade, slightly bettering its Friday highs against the yen and euro although some players were waiting for tonight's US new home sales data for February before betting on further gains.
   
Better-than-expected US existing home sales, released Friday, had lifted the dollar to a 118.13 yen high, while euro-dollar fell to 1.3282 usd during the New York session.
   
"March's data may weaken again as they capture more recent uncertainty and bad weather," noted one market analyst. "But still, these data have improved since December 2006 and support the view the housing market has undergone a brutal re-assessment and is now stabilizing."
   
But while the dollar extended its gains against the euro this morning in Asia, it initially pulled back slightly against the Japanese currency amid some concern of yen repatriation ahead of the March 31 fiscal year-end, dealers said.
   
This morning in Asia, dollar-yen opened near 118.00 yen and, other than a brief move back up toward the Friday high, spent much of the session between a low of 117.80 and 118.05 yen.
   
The pair crept higher in the afternoon, supported by early deals out of Europe, according to some dealers, and managed to clear the Friday peak for a 118.15 yen high so far.
   
From a tech perspective, analysts at G7Forex said: "Daily studies remain supportive but the 118.30-118.50 yen area still has to be scaled however, before the more important 119.00-10 yen area (Feb 16 low & equality rise from 115.75 yen) looms into view."
   
"We think carry trades will remain extremely choppy and risk/reward does not look that favourable in either direction," UBS strategist Nizam Idris wrote in a morning note. "Strong data could tip the balance in favor of a stronger yen, however."
   
Euro-dollar meanwhile continued to weaken this morning, falling to a 1.3260 usd low after an early attempt to rebound above 1.3300 usd was thwarted at 1.3295 usd.
   
On the downside, talk of demand fronting a large option barrier at 1.3250 usd helped put a floor under the pair although it spent most of the morning in a tight 1.3261 to 1.3274 usd range.
   
Afternoon trade saw euro-dollar trade between 1.3267 and 1.3282 usd with dealers looking to sell the pair on rallies toward the 1.3290 to 1.3300 usd mark. "The market is on the lookout for more good news on the (US) data front, as well as from the Fed, to extend the (dollar) rallies," noted DBS Bank analysts.
   
Indeed, market participants are eyeing US new home sales for February later tonight to inspire further dollar gains.

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