London shares close up, MPC vote raises rate hopes, Budget disregarded UPDATE

London shares close up, MPC vote raises rate hopes, Budget disregarded UPDATE

	Published : Wed, 21 Mar 2007 18:35 By : Agencies Print this Story

(updating with full company details)

LONDON (AFX) - London shares closed higher as investors took the budget in their stride but took heart from the latest minutes of the Bank of England MPC meeting which showed there was one voice calling for a rate cut which took some by surprise, dealers said.

By the close the FTSE 100 finished up 36.5 points at 6,256.8, having hit a post budget high of 6,287.5, with the FTSE 250 finishing up 153.4 points at 11,612.7. The broader indices also closed higher.

Over on Wall Street, US stocks were fluctuating in tepid trading Wednesday as investors awaited the Federal Reserve's latest take on the economy, which could signal where interest rates are headed.

A short while ago, the DJIA had fallen 12.42 to 12,275.68, after two sessions of gains.

Broader stock indicators showed modest gains. The Standard & Poor's 500 index rose 0.85 to 1,411.79, and the Nasdaq composite index advanced 0.93 to 2,409.14.

In London today markets took comfort from news that the only voice of dissent at the last MPC meeting was actually one member seeking a cut in rates, suggesting that talk of an imminent extra quarter point rate hike were a little premature.

As it was, the UK budget dominated much of the session and investors were cheered by the Chancellor's bullish growth forecasts going forward and also the headline cut in income tax.

However, analysts pointed out that the net effect of this reduction will be limited.

Property stocks dominated the leaderboard as ongoing sector consolidation hopes drove prices higher, with Hammerson flirting with record highs on talk the group is being eyed by GE Real Estate.

The group has been buoyed in recent days by long-running rumours it could also be vulnerable to a bid from French peer Unibail.

Hammerson closed 79 pence better at 1,734, Land Securities climbed 57 to 2,181, Liberty International was 10 better at 1,241 and British Land took on 21 to 1,558, further lifted by news of a 650 mln stg property deal with supermarket group Tesco.

Elsewhere, British Airways was lifted by the Budget as the Chancellor opted not to impose VAT on air tickets, and apocryphal talk of a possible bid from Emirates was also underpinning levels.

BA shares rose 16-1/2 to 519-1/2 ahead of tomorrow's open skies policy decision and, in a further development, the UK government was quick to refute claims in today's The Independent newspaper that US President George Bush rejected a plea from his British counterpart Tony Blair to exclude Heathrow airport from the EU/US open skies agreement.

'I don't recognise the account in The Independent of the conversation with the president. In other words it's wrong,' Blair's spokesman said.

The paper, without citing sources, said the rebuff from Bush came yesterday during a telephone conversation between the two men.

In broker comment, JP Morgan reaffirmed its 'neutral' rating on the UK carrier, saying it was siding with BA in seeing the Open Skies deal as one-sided, with Heathrow access being given to all US airlines.

Regarding the 'old chestnut' tie-up with the Emirates, dealers reminded investors with a short memory that previous rumours of a bid from its Middle Eastern peer had been 'rubbished' by the company back in October last year because, under the UK carrier's ownership rules, at least 51 pct of its equity must be owned by UK shareholders.

Elsewhere, selected financials were also courted as the planned mega-merger between Barclays and Dutch peer ABN-Amro gathered pace, and after Goldman Sachs upgraded the European banking sector to 'overweight' from 'neutral'.

According to the Financial Times, Barclays is negotiating an offer, expected to be made in shares with a small cash element -- with the two sides thought to be close to a deal on price.

Meanwhile, The Times reported the two companies are mulling a 10 bln stg cash sweetener to shareholders financed by the sale of ABN's US business LaSalle.

In a portfolio strategy note, Goldman Sachs said recent fears over the US subprime mortgage market have been overplayed and current valuations now offer a buying opportunity.

Barclays took on 10-1/2 at 712-1/2, Royal Bank of Scotland added 29 at 2,029 and HBOS added 8 at 1,050.

Imperial Tobacco, which last week initiated a long-anticipated attempt to buy rival Altadis, slipped from earlier highs to close 2 lower at 2,248 after profit takers emerged after saying 2007 results will come in in line with management's expectations.

The group, which made no reference to the takeover approach in an annual trading statement, added it is seeking additional annual cost savings of around 30 mln stg over the next few years.

Imperial was in further focus after ABC said the UK group will announce a 50 mln eur offer for Altadis on Thursday or Friday this week.

Elsewhere, Compass added 3-3/4 to 320-1/2 on market talk the group could be subject to an MBO. Yesterday, the rumour mill revived talk that peer Sodexho could be casting an acquisitive eye over the caterer.

Meanwhile, broker comment helped BSkyB claw back some of yesterday's regulation inspired losses, up 14 at 568, after Bear Stearns upgraded the broadcaster to 'outperform' from 'peer perform'.

In a note to clients, the broker said the stock has underperformed the market over the past three years as capex and investment have ramped up while subscriber growth and other indicators have slowed.

However, it believes BSkyB's 'competitively priced triple-play offer' will lead to a reversal in the recent key performance indicator trends.

Cable & Wireless took on 1-1/2 pence to 169-1/2 as Morgan Stanley raised its price to 190 pence from 175, keeping its 'overweight' recommendation.

Morgan Stanley said it sees further value for a potential acquirer of the group through a full separation of the telecom group's two main businesses.

And Cadbury Schweppes rose 10 to 645 thanks to an upgrade to 'overweight' from 'equal-weight' at Lehman Brothers following last week's news of its intention to separate its confectionery and Americas Beverages businesses.

In contrast, Whitbread was one of the main casualties this morning, down 70 at 1,864 after big gains yesterday spurred by talk of a private equity bid at 2,300 pence per share.

On the corporate front, Smiths Group eased 2 to 1,038 as ongoing fears over the weak dollar offset first half results which were higher than consensus estimates.

Earlier, the security and medical equipment maker reported a 7 pct rise in H1 headline pretax profits to 134 mln stg for continuing operations, despite a significant impact from the weaker dollar, the company said.

On the second-line, Premier Oil took on 58 to 1252 amid a revival of takeover speculation for the oil explorer ahead of full year results due tomorrow.

Back at the end of October last year, Premier Oil revealed that it had

received a preliminary takeover approach from an unnamed bidder.

On Dec 7 2006, however, the company announced that it had terminated all

offer talks, and did not reveal the name of the unnamed bidder.

Elsewhere, British Energy rose 19 pence to 481, lifted by Chancellor Gordon Brown's Budget announcement that the UK government will double its asset sales in the current year, sparking hopes a sale of its stake in the nuclear power station operator could happen this year.

While not specifically mentioning the British Energy stake, Gordon Brown said the government's asset sales will rise to 36 bln stg in 2007/2008, up from 18 bln in 2006/2007.

Elsewhere, shares in UK gaming groups moved higher after the EU told Denmark, Finland and Hungary to liberalise their gaming laws.

But news of a higher-than-hoped-for UK tax rate for on-line gaming groups took the shine off the news, they said.

Earlier, the European Commission said it had stepped up infringement proceedings against the three member states, calling on them to amend their laws, which breach EU rules on the free movement of services.

But gains in the sector were capped as Chancellor of the Exchequer Gordon Brown set a higher-than-hoped-for tax rate for online gaming operators.

Brown announced a new Remote Gaming Duty and set the rate at 15 pct.

However, PartyGaming took on 2 pence to 45, with peer 888 up 3 at 118.

In other developments, UK pub stocks were higher extending recent speculative gains on sector consolidation hopes with Panmure Gordon hiking targets for Enterprise Inns and Punch Taverns.

Dealers noted that bid speculation was helping the sector with talk that Mitchells & Butler was a target.

Panmure Gordon maintained its 'hold' stances for Enterprise Inns and Punch Taverns and raised its target prices to 700 pence from 650 pence and 1,300 pence from 1,250 pence respectively.

Punch Taverns was 44 higher at 1,237, Enterprise Inns ticked up 7 to 666-1/2 and Mitchells & Butler rose 5 to 292-1/4.

Elsewhere, Weir Group ticked up 19 to 596 after reporting solid full year results, prompting Merrill Lynch to repeat its 'buy' rating and Bridgewell to retain an 'overweight' recommendation.

On the downside, among the midcaps Abbot Group lost 11 to 284-3/4 amid talk Goldman Sachs was placing a major 12.25 pct stake in the oil services group, representing around 28.5 mln shares.

No further details regarding the placing were immediately available, with the shares said to be being offered via a book-build.

However, commentators pointed out that the likely vendor was Spencer Energy AS, which holds 28.462 mln shares in Abbot Group.

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