European Indexes End with Gains

Markets reversed earlier losses amid strength on Wall Street. Investors eyed earnings news and the latest move by the Federal Reserve

From Standard & Poor's European MarketScope

European markets closed strong Wednesday on news from Wall Street. Deutsche Telekom (DT ) said it would not bid on O2. A group of major stakeholders in Euronext expressed interest in continental rival Deutsche Boerse instead of the London Stock Exchange where acquisition talks had previously focused.

Germany: The Xetra-Dax index clocked up comfortable gains on Wednesday as bouncing tech stocks boosted the Nasdaq, distracting the broader market from concerns about rising interest rates and some quarterly earnings misses. In Frankfurt, BASF (BF ) (-1.35%) posted a 13% rise in third quarter earnings before interest, tax and special items of €1.33 billion, in line with expectations, but said fourth quarter profit will slide due to earnings impairments of €120 million from US hurricane related production losses. Metro (-3.33%) reported a 5.4% slide in third quarter EBITA to €299.4 million, worse than expected, and cut its growth forecast for 2005 sales.

MAN's (+1.66%) third quarter operating profit rose a better-than-expected 45.7% to €188 million, and the truck maker expects to come considerably closer to its margin target of 6% in 2006. Henkel (+7.37%) posted a forecast-beating third quarter operating of €300 million on sales 13.2% higher year-over-year at €3.14 billion, also topping expectations. Continental's (+2.6%) third quarter EBIT exceeded expectations by wide margin. Altana (-2.58%) reported nine months operating profit up 12% year-over-year to €522 million, better than expected, and said it expects full-year earnings growth to be in the upper single-digit percentage range. Altana added that it wants to approach select buyers for its pharma business in the coming months. Earnings aside, Deutsche Telekom (+2.55%) plans no counterbid for O2, CFO Karl-Gerhard Eick reportedly said.

United Kingdom: The FTSE 100 index ended modestly higher on Wednesday with the breadth around 7:3 positive. Banking stocks and BG group supported the index, adding 10 points, offsetting declines in 02, GlaxoSmithKline (GSK ) and Royal Dutch Shell (RD ) - which wiped 10 points off the FTSE. A decisive move higher by Wall Street helped to encourage a turnaround in Europe. WTI crude oil, trading below US$60/bbl, was also supportive, following benign weekly inventories data.

Telecom group O2 (-5.62%) plunged after Deutsche Telekom denied plans to launch a counterbid. Gas group BOC (BOX ) (-1.62%) lost ground after BASF said it was not interested. M&A talks refused to fade though. Royal & Sun Alliance (RSA ) (+0.25%) was supported by bid hopes, with rumors singling out French insurance giant AXA (AXA ). Royal Dutch Shell is said to be looking at a possible offer for BG (+2.13%). LSE (-0.7%) fell on reports top shareholders at Euronext are pressing the group to abandon its pursuit of the LSE and instead launch merger negotiations with Deutsche Boerse. BBA (+5.84%) rallied on plans to spin off its Fiberweb business. Wilson Bowden (+2.45%) said its total program of new development projects has risen to more than £1 billion over the last three months.

France: The CAC 40 index (-0.12%) pared losses by Wednesday's close but remained in the red. In Paris, Axa (AXA ) (-0.29%) remained in the red after press speculation this morning that it is mulling a bid for UK br>'s Prudential (PUK ). Royal & Sun Alliance and Swiss Life have also been mentioned as possible targets, although the Swiss group dismissed the rumors. France Telecom (FTE ) (-0.36%) slipped after Deutsche Telekom said it has no plans to launch a counterbid for UK br>'s 02. Euronext (unch.) was in focus on reports key shareholders are pressing to abandon the LSE bid and launch merger negotiations with Deutsche Boerse instead. STM (STM ) (+1.26%) inched higher after yesterday's losses after CEO said the global microchip market should grow by 8% in fiscal 2006. Club Med (+0.66%) gained after selling properties worth €225 million to Gecina (+0.98%). Publicis remained unchanged ahead of third quarter sales due after the close.

Elsewhere: Amsterdam's AEX index got a late boost as benign US oil inventories data lifted Wall Street. ING (ING ) (+0.95%) was higher on news it is to cut 500 additional jobs, on top of 450 redundancies already announced. The group announced further savings that will result in annual cost savings of about €190 million as of 2008. Unilever (UN ) (+0.68%) was stable ahead of its third quarter report due out tomorrow. Brokers are keenly awaiting an improvement in the group's organic revenue growth from last quarter's 3.3% growth. CSFB expects 4.2% this time around.

Scandinavian bourses ended higher on Wednesday, with the exception of Copenhagen, which was weighed down by profit-taking in index bellwether Moeller Maersk (-1.37%).

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

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