European Indexes Sink

Some strong earnings news couldn't outweigh the drag from New York futures Thursday morning

From Standard & Poor's European MarketScope

European indexes lost ground in early trading Thursday. US indexes were also set to open lower after the Dow closed just below an intra day record high. Oil slipped below US$58 a barrel.

Germany: The Xetra-Dax index (-0.12%) traded a touch below breakeven at mid-session Thursday ahead of interest rate decisions from the ECB and the BoE, with no change expected from both. BMW's (-1.39%) sales in Asia rose to a record 126,949 vehicles last year, up 13.8% year-over-year. The luxury cars group reiterated its target of achieving sales of 150,000 by next year.

China is reportedly expected to allow another 20 foreign banks, including Deutsche Bank (DB) (-0.01%), to incorporate locally this year. According to India's Hindustan Times, Merck (+0.1%) is expected to begin an auction in March for its generics business. FAZ wrote that up to 12% of Allianz's (AZ) (-0.24%) 20 million insurance policy holders could become customers of the insurance giant's Dresdner Bank unit in coming years.

Premiere's (+16.97%) fourth quarter subscriber numbers rose, and, having reached a deal with rival Arena, the TV group lifted its forecasts for this year and next. It can now distribute and market the Bundesliga channel throughout Germany via satellite. For this deal, Premiere will issue 16.4 million new shares.

Unsubstantiated talk of an LBO at Epcos (+2.71%) saw the stock well bid. Key on the broker front, MAN (+4.22%) saw several target hikes lift its stock; Deutsche raised its targets on Commerzbank (+0.34%) and Infineon (IFX) (+2.01%); and a target hike at Morgan Stanley supported ProSieben (+0.6%).

France: The CAC 40 index (-0.49%) traded firmly in the red at mid-session. Total (TOT) (-0.76%) weighed heaviest on the CAC 40, erasing 5.2 index points after reports that an employee has been kidnapped in Nigeria. According to Les Echos, Alcatel-Lucent (ALU) (-0.5%) will have to cut up to 13,000 jobs, equivalent to 15% of its global workforce.

Saint Gobain (+1.80%) was the best points and percentage performer on a price target increase and Conviction Buy List addition from Goldman Sachs. Renault (+0.71%) outperformed, reassuring the market with fiscal 2006 revenues of €41.528 billion, down 0.8%, but above estimates, and a group op. margin at 2.56% of revenues, with confirmed 3% guidance for 2007.

EADS (+0.87) moved higher on a target increase from Goldman Sachs to €30. Hermes (+1.24%) posted fiscal 2006 sales of €1.515 billion; +.16% - pushing LVMH 1.41%. Legrand (+0.96%) reported fiscal 2006 sales of €3.736 billion, +15.1% and net income of €252 million, +149%.

UK: The FTSE 100 index slipped lower at mid-session weighed down by weak mining and oils stocks, amid a flurry of earnings. In earnings news, Smith & Nephew (+6.32%) beat the forecast after posting a 7% rise in earnings. Glaxo (GSK) (+2.00%) posted in-line fiscal year figures and said it expects EPS growth in 2007 to be between 8% to 10%.

Reckitt's (+3.58%) fiscal year net income rose 17% and sets new targets for 2007. BT's (BT) (+1.58%) third quarter core earnings rose 2%, in line with market expectations. Gas producer BG (+3.23%) posted an 18% fall in fourth quarter pretax profit hit by falling gas prices, but said an energy shortage in the next 5 years would boost income.

Vodafone (VOD) (+0.66%) and Orange (FTE) are planning to merge their UK mobile phone networks. Engine maker Rolls-Royce's (+0.66%) 10% rise in fiscal year underlying op profit of £740 million beat expectations.

Among stocks which get the market's cold shoulder: Chemicals firm ICI (-0.32%) unveiled an 8% rise in fiscal year adjusted pretax profit and said the outlook is positive. Consumer goods conglomerate Unilever (UL) (-2.39%) unveiled a 27% rise in fiscal year EPS, beating estimates, but EBIT came below forecasts.

Directories publisher Yell (-1.69%) reported nine months adj. pretax profit of £190.6 million, a rise of 18.5%, ahead of estimates. In other news, HSBC's (-1.77%) shares slid after the bank reported larger-than-expected 2006 bad debt. Imperial Tobacco (ITY) (-2.78%) bought US cigarette firm CBHC for US$1.9 billion in cash.

Elsewhere: Spanish shares edged lower at midday as Altadis fell further, while US futures indicated a weaker open on Wall Street.

The SMI index (-0.44%) followed other European markets into the red, amid a flurry of earnings reports across the continent and ahead of comments from ECB President Trichet.

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