London shares lower midafternoon as volatile Wall St adds to energy weakness

London shares lower midafternoon as volatile Wall St adds to energy weakness

	Published : Fri, 16 Mar 2007 17:01 By : Agencies Print this Story

LONDON (AFX) - Leading shares remained lower midafternoon as a volatile early session on Wall Street added to weakness in energy stocks and helped to counter ongoing M&A hopes in Unilever and the tobacco sector, dealers said.

At 3.30 pm, the FTSE 100 index was down 8.1 points at 6,125.1, reversing some of yesterday's gains when M&A fever pushed the index to 6,133.2 points.

Volume was heavy, with 3.29 bln shares changing hands in 454,803 deals, boosted by a lively options expiry.

Meanwhile, Wall Street gave up initial gains as investors mulled mixed economic data showing consumer prices rose a steeper than expected 0.4 pct in February, while the core CPI rose 0.2 pct, in line with expectations.

Quadruple witching expiries also added an extra spice to the session.

A short time ago, the DJIA was 23.70 lower at 12132.40, having given up initial gains.

Back in London, energy stocks continued to weigh on blue chips as oil prices languished below 58.0 usd per barrel after OPEC decided to leave production quotas unchanged as expected.

Cairn Energy bore the brunt of the falls, down 28 at 1509, ahead of its demotion from the FTSE 100 on Monday, Royal Dutch Shell was down 18 pence at 1,622, BP fell 3-1/2 at 513 and BG eased 1 at 688.

Financial stocks were also under pressure, ending the week as they began, as investors continued to fret over global economic growth and the sub-prime mortgage market in the US in particular.

Mortgage bank HBOS lost 8 to 1,023, HSBC shed 9 at 877, Royal Bank of Scotland gave up 28 at 1,959, and Barclays lost 4-1/2 to 682-1/2.

Still in financials, insurers were also under the cosh due to their heavy exposure to stock markets following the latest global equity sell-off this week.

Standard Life shed 3-3/4 to 295-1/4, Old Mutual gave up 1-1/4 at 163, Friends Provident turned 3-1/4 lower at 197-1/4, and Resolution eased 3-1/2 at 644-1/2.

But Wolseley was the top faller, down 26 at 1,196 ahead of interim results on Monday amid fears over the heating and plumbing products group's exposure to the US economy and the sub-prime mortgage market.

In contrast, Unilever shares took on 50 to 1,534 amid vague talk the Anglo-Dutch consumer goods giant could be the latest group to fall prey to a private equity bid.

Meanwhile, other traders said sentiment may be lifted by hopes Unilever could come under pressure to demerge its food business after news yesterday Cadbury Schweppes plans to split its confectionery and Americas Beverages operations.

The Friday rumour mill also resuscitated talk of private equity interest in Pearson, which saw the shares take up 6-1/2 at 818.

And M&A hopes continued to light up the tobacco sector following Imperial Tobacco's surprise move for Spanish peer Altadis yesterday, with investors not ruling out a bid for Imperial itself.

In a note to clients, Lehman Brothers argued US giant Altria could link up with Altadis to turn the tables and bid for Imperial Tobacco themselves, although the broker saw this as unlikely.

And Dresdner Kleinowrt upgraded its stance on Imperial Tobacco to 'add' from 'hold' and said Imperial's move for Altria is 'a 'put-up or shut-up' to Altria, its potential bidder, where we see a 24 stg per share bid as possible.' Imperial Tobacco was 72 pence higher at 2,294, British American Tobacco took on 31 to 1,593.

And M&A hopes continued to underpin retailers, with Sainsbury 4-1/4 firmer at 547 on vague rumours a bid announcement is imminent from the grocer.

Meanwhile an article in Retail Bulletin says Reliance Industries, which has currently got its eye on Carrefour, has also been mulling the goings on

at Sainsbury.

A spokesman for Reliance told the magazine that 'It would make a lot of

sense for us to do something like this'.

Peer Tesco was 3 higher at 430 after Dresdner Kleinwort upgraded the grocer to 'add' from 'hold' with an increased target price of 460 pence, up from 425 on valuation grounds.

Telecoms were also courted, building on vague talk yesterday BT Group could be subject to a private equity bid, with the incumbent operator 2-3/4 firmer at 300, Vodafone gained 2 at 139 and Cable & Wireless rose 2 at 167-1/4.

In earnings, Carnival rose 23 at 2,435 after the cruise operator reported a year-on-year rise in first-quarter net income driven by an increase in cruise capacity.

First-quarter net income was 283 mln usd, compared with 251 mln usd the previous year with net revenues 9.1 pct higher at 2.69 bln.

In response, JP Morgan said EPS of 0.35 usd came in above the consensus estimate of 0.34.

On the second line, HMV Group dropped 5 to 120-3/4 after Morgan Stanley downgraded the music retailer to 'underweight' from 'equal-weight' with a reduced target price of 100 pence, saying the firm's market seems to be in terminal decline.

The broker said it is advising investors to actively reduce exposure to the stock.

But high street peer Debenhams gained 3 to 180 as reports that underlying sales continue to fall were offset by expectations that first-half profit will be in line with guidance.

Merrill Lynch cut its price objective to 210 pence from 220 and said the first half to the end of February closed with further slippage in like-for-like sales from a drop of about 4.5 pct to around 6 pct.

Also on the upside, meanwhile, Gyrus Group, PayPoint and AGA Foodservice Group were all in demand following this morning's trading updates.

PayPoint was the top mid-cap riser, up 65 pence at 635, after the cash and internet payments group said its 11-month trading has been ahead of analysts' forecasts.

Finally, First Choice took on 10 at 281 on talk the holiday group is discussing a deal with Swiss billionaire Sergio Mantegazza.

The Financial Times highlighted rumours First Choice could look to sell its mainstream holiday business to Mantegazza, who owns tour operators Globus and Cosmos or merge its airline operations with his Monarch fleet.

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