US & World Daily Markets Financial Briefing 04-07-2007

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Due to a national holiday there is no US News

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Pound continues rally against dollar, supported by strong services PMI

The pound remained strong against the dollar, boosted by a survey showing activity in the service sector remains robust.

The services sector purchasing managers' index for June rose to 57.7 from 57.2 in May - analysts had expected the reading to remain unchanged.

Sterling has rallied in the past few days on expectations that the Monetary Policy Committee, which begins its rate setting meeting today, will raise interest rates a quarter point to 5.75 pct tomorrow. In early trade this morning it broke above 2.02 usd for the first time since June 1981, although it has since fallen back slightly.

These expectations for a rate rise were boosted by the PMI survey and meant the pound shrugged off figures released earlier by Halifax, the UK's largest mortgage lender which showed that house price growth was sluggish in June, rising 0.4 pct from May.

With the US celebrating Independence Day, analysts expect the greenback to remain weak in thin holiday trade.

The ECB is expected to keep interest rates unchanged at 4.00 pct but is seen maintaining a hawkish tone in its accompanying statement.

Earlier the euro was largely unaffected by the PMI services index for the 13-nation single currency area.

The final services sector purchasing managers' index for the region rose to 58.3 in June from 57.0 in May. The final estimate was unchanged from the provisional estimate and in line with market expectations.

Meanwhile the yen was slightly weaker, pushed lower as risk sentiment is boosted by a rebound in global equity markets. A rise in risk sentiment tends to push the yen lower as it boosts investors enthusiasm for the carry trade - where investors borrow in low-yielding currencies such as the yen to invest in high-yielding ones elsewhere.

Elsewhere the Australian dollar was steady after the Reserve Bank of Australia's much-anticipated decision to keep interest rates on hold. The currency fell back slightly yesterday after weaker-than expected retail trade figures, but has recovered to trade close to the multi-year highs it hit against the US dollar at the start of the week.

However he added that while the country's economy goes from strength to strength, its inflation rate will need to soften if future hikes are to be avoided.

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Europe's leading exchanges gained ground, stoked by merger and acquisition talk in the hotel and leisure sector following a 26 bln usd private equity buy-out of Hilton Hotels.

Volumes are likely to remain light with US markets closed for the Independence Day holiday.

At 11.53 am, the Dow Jones STOXX 50 was up 9.49 points or 0.2 pct to 3,973.83, while the DJ STOXX 600 rose 1.46 points or 0.4 pct to 397.15. The DJ Euro STOXX 50 Index, which tracks the performance of blue chip companies in 12 countries using the euro, rose 13.90 points, or 0.3 pct to 4,526.91.

"The M&A theme is very prominent again following the announced deal in the US overnight," said Robert Parkes, equity strategist at HSBC, referring to a 26 bln usd -- or, 20.1 bln usd excluding debt -- private equity buy-out of Hilton Hotels.

"That's put the hotel/leisure sector in play."

Parkes said the M&A cycle has yet to peak and it's going to continue be a key driver, notably of the UK equity market.

He added however that volumes are likely to be light, with US markets closed for the Independence Day holiday.

Hotel and leisure stocks were in focus after Blackstone Group said last night that Hilton Hotels has agreed to be bought out by the private equity group in the 26 bln usd deal, which would make Blackstone the world's largest hotel owner.

The news sparked speculations of similar deals in the European landscape.

Shares in France's Accor shot up 7.6 pct.

The French hotel operator's was being further boosted by news that Colony Capital had raised its stake in the company to 10.3 pct from the 5.7 pct declared in April by converting the remaining 500 mln eur of Accor bonds it held into shares.

UK hotel group Intercontinental Hotels rallied 5.1 pct. Whitbread, which owns the Premier Travel Inn brand, climbed 3.4 pct.

Spanish chain NH Hoteles rose to the top of the IBEX, adding 3.05 pct. Sol Melia, another Spanish hotel operator, climbed 4.1 pct.

Staying in M&A, Austria's A-TEC Industries AG said it has increased its holding in Belgian copper producer Cumerio SA to 20.9 pct from 17.5 pct and added it intends to remain a significant shareholder of Cumerio and may want to further accumulate its shareholding.

The company also holds a 15.1 pct stake in Norddeutsche Affinerie AG (NA), which is currently moving to take over Cumerio but has said its interest in Cumerio was not designed at scuppering a merger between the two, but rather ensuring A-TEC's role in the consolidation of the European copper sector.

Shares in Norddeutsche Affinerie gained 1.7 pct, while Cumerio fell 0.5 pct. A-Tec Industries shares rose 1.4 pct.

"I don't believe A-TEC is going to try to takeover the company, but now as a significant shareholder in both, is making these acquisitions as a way of boosting its bargaining power for (its copper production unit) Brixlegg in the discussion planned by NA and A-TEC on Thursday," said Gerald Walek, an analyst
at Erste Bank.

On earnings news, Laurus NV surged 6.67 pct this morning on the back of the trading update it presented yesterday.

"Laurus is doing well this morning," said a broker for AFS Brokers. "The trading update from yesterday points to a true 'road to recovery' scenario," he said of the supermarket retail group.

Brokerage Theodoor Gilissen raised the stock to 'buy' from 'hold' while Rabo Securities had positive comments on the trading update in a note to clients.

Also, Ahold rose 1.3 pct after JP Morgan upgraded the stock to 'overweight' from 'neutral' with a target raised to 11 eur from 9.50.

JP Morgan said Ahold's share price should be underpinned by the high strategic/M&A value of its three key remaining operations, its very low debt levels following the completion of disposals and the capital repayment and signs of reduced margin pressure in the US retail sector.

The resumption of a dividend, higher property value as a proportion of enterprise value, stronger cash generation prospects, and its more competent top management were other factors behind the broker's upgrade.

Over in France, Sodexho Alliance gained 0.7 pct as analysts assessed its nine-month sales data as positive, citing good like-for-like data. Like-for-like sales, a key measure of retail performance, refers to sales from stores open at least a year.

Elsewhere, oil services companies were gaining ground after Morgan Stanley substantially increased valuations to reflect part of the upside it expects in the sector.

In a note to clients, Morgan Stanley said its top pick is Acergy, up 3.1 pct, while Subsea 7 rose 3.7 pct as the broker's second pick with 49 pct upside to its new target of 200 nkr.

Saipem saw its target increased by 29 pct to 31 eur and gained 3 pct. The broker said it carries an 'overweight' stance on these stocks.

It added that it is 'equal weight' on Technip, with a target up 14 pct to 64 eur. Technip shares rose 1.7 pct.

European staffing stocks were also in play after Deutsche Bank shuffled its ratings on the sector.

Randstad gained 2.2 pct as the broker upgraded it to 'buy' from 'hold,' with an increased price target of 68 eur from 58.

The broker said Randstad and UK peer Michael Page International PLC offer value in the staffing sector. It reiterated its 'buy' rating on Michael Page.

The broker was less confident in Adecco, downgrading the staffing provider to 'hold' from 'buy' with a price target of 101 sfr. Although the broker still sees Adecco as attractive, it believes the upside potential which led it to upgrade the stock in February are now mostly priced in. Adecco was last down 0.7 pct.

Elsewhere, Vedior fell 1.8 pct as Deutsche Bank cut its stance to 'hold' from 'buy' but upped its price target to 24 eur from 21.

Finally, the broker reiterated Hays with a 'hold' view and an increased price target of 179 from 159. The stock was up 0.1 pct.

FCC climbed 3 pct after Merrill Lynch issued a note in which it called the latest correction in constructor stocks a clear buying opportunity for investors.

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Bangkok

Shares close higher on foreign investor interest, index at new high

Thai share prices closed higher Wednesday, hitting a fresh 10-year high as foreign investors continued to pour money into the market.

Foreign investors were seen snapping up stocks around the region in a buying spree sparked by the US Federal Reserve's decision last week to maintain interest rates at current levels.

The Stock Exchange of Thailand (SET) composite index gained 11.93 points or 1.47 percent to close at 825.45 points, and the blue-chip SET 50 rose 9.33 points to 590.27.

Jakarta

Shares close higher, PGN limits gains; index sets new high

Indonesian shares close higher Wednesday, with the main index finishing at a new record, driven by gains in heavyweight Telkom and its rival Indosat, but the upside was limited by sharp losses in gas distributor Perusahaan Gas Negara (PGN).

PGN has been under selling pressure recently amid uncertainty regarding its plan to hike the selling price of gas in August after the government said the move requires its approval.

Meanwhile, the country's first and second largest telephone operators Telkom and Indosat were among the buying targets partly because they will not be affected by a new foreign shareholding limit imposed by the government.

The government today set a new ceiling for foreign ownership in cellular telephone companies at 65 percent and in fixed line telephone companies at 49 percent.

Foreigners were previously allowed to hold up to 95 percent in mobile phone companies.

The composite index closed up 6.986 points or 0.32 percent at 2,196.105, beating the previous all-time high of 2,189.119 set yesterday.

Volume was 4.25 billion shares worth 4.7 trillion rupiah.
The LQ45 index gained 1.602 points to 456.146.
Gainers led losers 102 to 79, while 67 stocks were unchanged.
The rupiah was trading at 9,000/9,010 to the dollar against 9,015/9,025 late Tuesday.

Singapore

Shares close lower on consolidation

Singapore shares closed lower Wednesday as investors consolidated positions in the absence of fresh domestic leads and with US markets closed for the Independence Day holiday.

With valuations already looking expensive, investors were also reluctant to buy blue chips at their current prices.

The Straits Times Index closed down 14.58 points or 0.41 percent at 3,554.85, after moving between 3,554.0 and 3,583.61.

There were 4.08 billion shares traded worth 2.68 billion Singapore dollars.

Gainers led losers 405 to 383, with 297 shares unchanged.

Kuala Lumpur

Shares close higher; KLCI up for fourth straight day

Malaysian shares closed Wedneday higher as the continued buying of construction and property stocks and renewed interest in plantation counters extended the benchmark KLCI's gains into a fourth straight day.

However, late profit-taking in some big-cap stocks limited the key index's gains.

The Kuala Lumpur Composite Index gained 4.0 points or 0.29 percent to 1,377.14, off the session's high of 1,383.22.

The FTSE Bursa Malaysia 30-large cap index was down 6.26 points or 0.07 percent at 8,726.89, while the second board index advanced 0.48 of a point or 0.43 percent to 112.52.

Gainers led losers 498 to 389, with 310 stocks unchanged and 154 counters untraded.

Volume traded reached 1.2 billion shares, valued at 2.08 billion ringgit.

Tokyo

Shares close marginally higher in quiet trade after Wall St gains

Tokyo share prices closed marginally higher in quiet trade Wednesday after US stocks made further gains overnight.

However, many investors opted to stay on the sidelines to await fresher leads as US financial markets are closed for the Fourth of July holiday.

The blue-chip Nikkei 225 Stock Average closed up 18.82 points or 0.1 percent at 18,168.72, off a high of 18,207.97 and a low of 18,143.58.

The TOPIX index of all Tokyo Stock Exchange first-section issues was up by a marginal 0.58 points or 0.03 percent at 1,782.44, off a high of 1,787.96 and a low of 1,780.50.

Decliners beat gainers 987 to 580, with 159 issues ending flat.

Volume traded fell to 1.52 billion shares from 1.77 billion shares yesterday.

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Copper extended gains into the afternoon as fears continued that a number of threatened strikes in South America will disrupt supply, and as LME-monitored stocks of the metal dipped to a nine-month low.

The weaker dollar is encouraging fresh buying of all the base metals at the start of the new quarter- and half-year, analysts said.

Industrial metals are denominated in dollars, and weakness in the US currency makes them cheaper for holders of other currencies.

At 1.59 pm, LME copper for three-month delivery had risen to 7,795 usd a tonne against 7,725 usd at the close yesterday.

Chile's state-owned copper miner Codelco said it is meeting with workers today to discuss an end to the strike which began on June 25.

Talks also continue between Southern Copper Corp and workers at its Peruvian operations, amid hopes a strike scheduled to begin on July 9 can be averted.

Elsewhere, the strike at Xstrata's CCR refinery in Montreal, which started on June 11, continues.

Although a risk premium linked to strikes has already been added to prices, any actual disruption of supply could send them still higher, analysts said.

Prices have also been buoyed by a decline in stockpiles of the metal monitored by the LME, which dipped a further 1,650 tonnes this morning to 110,375 tonnes, their lowest level since last October.

Meanwhile lead hit new highs as the market continued to predict supplies will remain tight this year.

LME lead was trading at 2,875 usd a tonne against 2,770 usd at the close yesterday. Earlier the metal hit a fresh intraday high of 2,890 usd.

This morning's LME inventory report showed a large increase in lead cancelled warrants -- representing stocks of the metal booked and due to leave the exchange's warehouses -- which suggests immediate availability of the metal is falling.

Lead has hit a series of new highs in recent months after China imposed a 10 pct export tax on the metal to address internal shortages.

The tax further exacerbated a global shortage of the metal linked to the suspension of exports from Australia's Port Esperance, through which lead is transported from the Magellan mine.

Magellan produces around 3 pct of the world's lead supply each year.

Standard Bank raised its lead price average for 2007 to 2,175 usd per tonne from 1,940 usd on concerns over tight global supplies.

Analysts at the investment bank have increased their projected global deficit for the year to 55,000 tonnes from 35,000 tonnes, amid heightening concerns over Chinese lead production.

Tin prices rose to 14,115 usd against 13,825 usd at yesterday's close.

Among other metals, zinc edged up to 3,455 usd from 3,430 usd, while nickel dipped to 36,250 usd from 36,300 usd.

Aluminium rose to 2,775 usd from 2,746 usd.

Trade is expected to remain quiet due to the US Independence Day holiday today.

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