London shares show early strength, sentiment lifted as Fed softens tone UPDATE

London shares show early strength, sentiment lifted as Fed softens tone UPDATE

	Published : Thu, 22 Mar 2007 10:38 By : Agencies Print this Story

(Updating with full company details)

LONDON (AFX) - Leading blue chips were firmer this morning in reaction to the US Federal Reserve softening of its tone towards tightening monetary policy - fuelling hopes key US interest rates may have peaked and might be heading lower, dealers said.

At 9.00 am, the FTSE 100 was up 65.2 points at 6,322.00, having hit an opening high of 6,342.2, with the broader indices also higher.

Early volume was moderate with 409 mln shares changing hands in 65,404 deals.

Last night on Wall Street, US stocks rallied sharply after an economic assessment by the Federal Reserve ignited investor hopes that the central bank has warmed to the idea of lowering short-term interest rates.

By the close the Dow had soared 159.42 points, or 1.30 pct, to 12,447.52, after having been flat until the Fed announcement. It was the index's biggest one-day point gain since July 24.

Broader stock indicators also posted strong gains. The Standard & Poor's 500 index jumped 24.10, or 1.71 pct, to 1,435.04, and the Nasdaq composite index advanced 47.71, or 1.98 pct, to 2,455.92.

Over in Asia, markets rallied on the back of the strong showing on Wall Street with the Nikkei 225 Index closing up 256.0 points at 17,419.2, while Hong Kong's Hang Seng ended its morning session up 237.70 points at 19,754.11.

Looking at commodities, oil prices rose as the market digested news of higher-than-expected falls in US gasoline stocks.

New York's main oil futures contract, light sweet crude for delivery in May, was up 43 cents at 60.04 usd a barrel from 59.61 usd in late US trades overnight.

Among blue chips on the move this morning, Next moved to the top of the leader board, up 75 to 2,170, as the fashion retailer reported a better-than-expected 6.5 pct increase in full-year pretax profits.

At the same time, the group said trading at its stores in its new financial year has improved, but added it remains cautious on the year ahead, believing the consumer environment will remain 'challenging'.

In response, Goldman Sachs reiterated its 'buy' advice and said this is a stronger performance than expected and should maintain the strong Next share price performance so far this year.

Seymour Pierce also said the results were better than expected and said its rating was under review.

In further reaction, Bridgewell Securities said that it continues to believe that there are significant changes taking place in the business and expects the like-for-like trends to stabilise as 2008 unfolds.

It added that the combination of better-than-expected profits last year and encouraging like-for-like trends in the early weeks of this year bode well for forecasts and was likely to edge ahead of earnings estimates following the analysts' meeting this morning.

Elsewhere, US sensitive issues dominated the leader board with hedge fund group Man Group up 14-1/2 pence at 560-1/2, broker ICAP up 13 at 546 and plumbing supply group Wolseley rallying 30 to 1281.

Property issues were also registering following yesterday's UK Budget and rumours of further sector consolidation.

Slough Estates gained 24-1/2 at 803, while peer Hammerson, which rose strongly yesterday on the back of rumours of a possible bid from Unibail and GE Real Estate, took on a further 45 pence in early deals, taking the share price to a record high of 1,779.

Reuters put on 13-1/4 to 461 after Morgan Stanley reiterated its 'overweight' rating and hiked its price target to 524 pence from 484.

Morgan Stanley said it is time to put Reuters onto the front burner, with revenue growth improving and restructuring costs falling away, and as such has hiked its price target on the stock by 8 pct, implying 18 pct upside potential.

Banking stocks also rose after ABN Amro reviewed the UK banking sector and upgraded its stance for Lloyds TSB to 'buy' and HSBC to 'hold' on valuation grounds.

ABN Amro said that sharp price declines in the past two weeks do not look justified by the fundamentals in its opinion, unless it is believed that US sub-prime mortgage credit quality deterioration presages problems in other asset classes.

In response Lloyds put on 8 to 567, while HSBC rallied 11 to 892. Peers RBS rose 47 to 2076 and Barclays was up 13 at 726.

Meanwhile, bucking this morning's positive trend, AstraZeneca lost 13 to 2823 after JP Morgan cut its rating in the pharma group to 'underweight', highlighting its view that it believes UK pharma names are overvalued.

The broker also downgraded GlaxoSmithKline to 'underweight' in the same note.

On the second line, builders merchants Travis Perkins rose 90 to 2,060 after Citigroup upped its stance to 'buy' and flagged the possibility of further consolidation within the sector.

Back with earnings news, Premier Oil gained 5 to 1257 following its full year results this morning, prompting Merrill Lynch to repeat its 'buy' recommendation.

The oil group reported a rise in full year profits as sales remained broadly flat after excluding revenue from the Chinguetti field, which Premier said it intends to sell.

Merrill said that it attaches little credibility to the press report in the Independent newspaper this week suggesting a Middle Eastern company is preparing a 1,700 pence per share bid for Premier.

On the downside, Rank Group slumped more than 5 pct after Dresdner Kleinwort cut its stance to 'sell' from 'hold' following yesterday's Budget, which it said dealt a further blow to the casino industry.

The broker said that the government had effectively kicked the industry in the teeth with unfavourable changes to casino duty.

It said with the change in duty, the likelihood of a bid for the stock has significantly diminished and the current P/E rating remains unsustainable.

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