European Indexes Reverse Gains

Markets closed lower after making large strides in the morning. Climbers included AXA while oil companies took a hit

From Standard & Poor's European MarketScope

After very strong trading in the morning the major European indexes slipped into the red Monday, weighed down by oil stocks and disappointing housing data from the US. Investors sought to lock in gains ahead of a probable tightening of interest rates by the European Central Bank on Thursday. M&A discussions continued to dominate the conversation in the UK.

United Kingdom:The FTSE ended lower, after touching a new multi-year high earlier Monday morning. Declining oil prices hit BP (BP )(-2.5%) and Royal Dutch Shell (RDS )(-1.47%). Vodafone (VOD )(-1.56%) continued its recent retreat, after Lehman removed the stock from its recommended list. Legal & General (+1.75%) was a big gainer, after a target price upgrade from UBS. Merrill Lynch also helped financials by painting a fairly upbeat outlook for UK banks ahead of the trading update season.

M&A talk continued with rumors of an imminent offer for P&O (-0.68%) of more than £3 billion from a Middle East-based buyer, while Rexam (-0.77%) was rumored to be considering a bid of more than £3 billion for the glass bottles business of Saint-Gobain. Investors tuned into GCAP Media (+2.8%) on speculation private equity bidders could step in. Aegis ended up 4.88% as Bollore increased his stake. Acambis (ACAM )(+2.43%) started Phase I clinical trials for a hospital bug vaccine.

France: The CAC 40 index (-0.55%) ended the day in the red, weighed down by oil giant Total (TOT )(-1.69%) and a bout of profit-taking. France Telecom (FTE )(-2.02%) added to the day's woes, among rumors of a bid for Cable & Wireless. Gaz de France (-1.10%) slid, while La Tribune reported it aims to poach 5 million clients from its sister utility company EdF (-1.13%) between the fiscal years 2007 and 2012 as a result of energy liberalization.

Days after Arcelor's (-1.81%) bid for Canada's Dofasco, German peer ThyssenKrupp launched a friendly takeover, improving on Arcelor's offer by 9.8%. ThyssenKrupp added they might lift their CAD61.50 offer should there be a rival bid. Financials and technology stocks provided a bright spot. AXA (AXA )(+0.70%), Cap Gemini (+1.59%) and Alcatel (ALA )(+0.77%) all lifted the index. Saint Gobain (+0.80%) rose after reports that the UK's Rexam is considering a £3 billion bid for its glass bottle unit. Finally, Rhodia (+13.85%) was the day's most heavily traded stock, boosted by a Morgan Stanley upgrade to outperform and the UN's approval of its project to cut greenhouse gas emission at a South Korean facility.

Germany: The Xetra-Dax index closed lower, reversing gains seen earlier in the day. Swedish investment group EQT was given the highest chance of getting DaimlerChrysler's (DCX )(-0.26%) diesel engine maker MTU Friedrichshafen, with MAN (+1.61%) lagging in the bidding war. VW's (+0.23%) Spanish unit Seat plans to invest €700 million through 2008 on product development as well as improving quality and efficiency.

Chipmaker Infineon (+0.26%) expected to post a profit in its smart card chip unit by the fourth quarter of 2006. The company may also buy a Japanese auto- or industrial electronics group after the sale of its memory business. Deutsche Telekom's (DT )(-0.62%) T-Online put in a bid for Bundesliga rights to show three seasons of domestic football league matches live over the Internet. Pay-TV group Premiere (-2.22%) was hit by news. Deutsche Post's (-2.07%) DHL Express unit in the US said the integration of its air operations at Wilmington, Ohio, was disappointing and had a negative financial impact. Wincor Nixdorf (+2.68%) was marked higher after an upgrade to buy from hold at UBS.

Elsewhere: The SMI (-0.95%) moved into reverse gear late in the session, and ended up in the red. In Switzerland, Clariant climbed 2.25% on the back of a CSFB upgrade and revived, yet unfounded, speculation that the firm may be bought by Ciba, down 0.26%. The deepest loser, Swisscom, (SCM ) slumped 2.52% on the back of an FT article speculating that there might be a possible resignation of CEO Jens Adler. This followed a surprising announcement last week that the government (owns 66%) is going to stand in the way of takeover attempts. Deutsche Bank argued the equity risk premium is likely to increase and downgraded the stock to sell. Novartis (NVS ) rose up 1.07% on news that it is selling its Nutrition & Sante business unit to ABN Amro Capital France for approximately €220 million.

Prepared by Zaida Espana, Valerie Vidal, Michael Sanderson, Mariella Mongio, Alexander Wisch, Holly Cook, Emma Stevenson, Pawan Girglani, Julien Manrique, and Rocio Opazo-Aniotz (Standard & Poor's); Alex Halperin (BusinessWeek Online)

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