Sunday, September 17, 2006

Leading shares closed flat, giving up earlier gains in the last few minutes
of trade as investors took profits at the end of a volatile session and with
another chapter in the gambling sector saga overshadowing gains in mortgage
banking stocks, dealers said. The FTSE 100 index closed just 0.2 points
lower at 5,877.0 in a volatile session that saw the blue chip index see-saw
between gains and losses, while the broader indices ended higher. Volume was
high, with 3.2 bln shares changing hands in 379,134 deals, swelled by a
lively 'triple-witching' options expiry. On Wall Street, US stocks were in
upbeat mode as investors breathed a sigh of relief following an in-line tame
inflation report, although US 'quadruple witching' limited gains, traders
said. At the UK close, the Dow Jones Industrial Average was 50.40 points
higher at 11,577.70, while the Nasdaq Composite took on 7.34 points at
2,236.07 and the S&P 500 rose 4.50 points at 1,320.80. US inflation rose at
a slower pace in August than in the prior month, the Labor Department
revealed, easing fears of an imminent rate hike. The consumer price index
rose 0.2 pct in August, in line with expectations compared with a 0.4 pct
hike in July.

And core inflation, which excludes energy and food, also rose by an expected
0.2 pct in the month.

In London, mortgage banks led the blue chip gainers, helped in part by
upbeat broker comment and increased expectations of further UK rate hikes,
and also by ongoing market speculation of an upcoming bid in the sector,
dealers said.

HBOS gained 36-1/2 pence to 1,050, while fellow mortgage banks Alliance &
Leicester and Northern Rock added 21 pence to 1,060 and 29-1/2 pence at
1,165-1/2, respectively.

Standard Chartered was also a feature, adding 24 pence to 1,349, after UBS

upgraded its recommendation on the Asia-focused bank to 'buy' from 'neutral'
due to strength in emerging economies and solid organic growth.

The broker said Standard Chartered has invested 4 bln usd in establishing a
foothold in economies such as Korea, Pakistan, Indonesia and Thailand.

Elsewhere, Imperial Tobacco was in demand, up 17 pence at 1,830 after the
group said in a trading statement that its full-year performance was 'in
line with expectations'.

Ahead of the statement, Deutsche Bank issued a bullish research note,
repeating its 'buy' recommendation and raising its target to 2,100 pence
from 1,900.

The German-owned broker noted that the group is the cheapest European
tobacco play in its universe, which fails to do justice to the stock's
quality.

The retail sector also benefited from positive broker comment, with Morrison
Supermarkets rising 4-1/2 pence at 230-3/4 after UBS and SG Securities
reiterated their 'buy' ratings ahead of next week's interim trading update.

Meanwhile, Marks & Spencer Group, up 11 pence at 624, was boosted by a
bullish note from Lehman Brothers, which reiterated an 'overweight' rating
on the retailer.

The broker said spending fears following the Bank of England's interest rate
hike seem overdone as consumer data suggest sales are healthy, albeit
boosted slightly by weak comparatives.

And further broker comment also provided a lift to the property stocks as
Lehman Brothers hiked its price targets by an average of 5 pct across the
European real estate sector to account for the introduction of REITs in the
UK.

Hammerson took on 12 at 1,303, Liberty International gained 35 at 1,195,
Slough Estates rose 5 at 646 and British Land firmed 14 at 1,362.

Elsewhere, shares in Wolseley remained firmer, 24 pence to the good at 1,193
as Citigroup played down fears over the slowing US housing market,
reiterating its 'buy' rating on the group and 1,600p price target.

The US broker told clients Wolseley's share price has fallen around 20 pct
since March, reflecting concerns over the US residential housing market.

However, overall index gains were capped by negative and volatile trading in
the mining sector as commodity prices remained under pressure, with gold
slumping to its lowest level in three months.

Kazakhmys was off 36 pence at 1,207, Xstrata fell 72 at 2,160, Anglo
American was down 55 at 2,110 and Antofagasta eased 14-1/4 at 440-1/2.

Oil and natural gas prices were also weaker, with crude hitting a fresh low
of just above 63 usd a barrel last night on news of a strong buildup in US
natural gas reserves and the suspension of a strike by oil unions in
Nigeria.

Also weighing was a statement from OPEC, which lowered its world oil demand
growth forecast by 100,000 bpd due to weaker than expected demand.

Oil heavyweight BP was down 11-1/2 at 573, while Cairn Energy dropped 41
pence at 1,917.

BP was further hit by a report in the Financial Times claiming some of the
group's major shareholders are pressing for assurances that recent security
failures in the US will not be repeated.

The main blue chip casualty, however, was PartyGaming -- down 9-1/2 pence at
100-3/4.

Several online gambling stocks came under pressure after news that the state
of Bavaria has revoked the betting license of German firm Bwin, and that
Bwin's co-CEOs had been arrested in France, sent panic through the sector.

'This is a potential meltdown,' one London based dealer said, upon hearing
the speculation.

As well as a slump in PartyGaming shares, midcaps 888 Holdings dropped 8-1/4
pence to 141-3/4 and Sportingbet shares were down 20 pence at 172.

And elsewhere the midcap index reflected movements in the FTSE 100, with
mining and oil plays under the cosh: Tullow Oil slipped 8-3/4 pence at
357-1/2 and Dana Petroleum slid 33-1/2 pence at 1,148.

Among the midcap risers, Aggreko enjoyed a strong session, 16 pence to the
good at 303, after its shares were upgraded to 'add' from 'hold' at Dresdner
Kleinwort, which also raised its price target to 310 pence from 280.

In a note to clients, DK said that the second half is seasonally stronger
for Aggreko and with the momentum in growth continuing into this period it
now expects a stronger profit performance.

And house-builders were also in fine fettle after The Independent said
investors are looking for the next takeover target in the sector.

The paper said both Bellway and Crest performed strongly yesterday, while
the Financial Times highlighted talk of corporate interest in Redrow from a
private equity house.

In response, Redrow gained 12 pence to 586-3/4, while Taylor Woodrow added
15-1/4 pence to 368, Bellway took on 10 at 1,277 and Crest Nicholson rose
3-1/2 at 550.

Among M&A news, Dairy Crest shares took on 12-1/4 pence at 575 after
confirming market speculation that it is in talks with First Milk regarding
a possible sale of part of its retailer brand cheese operations.

A statement from the company said the discussions are ongoing and there can
be no certainty that this will result in any transaction.