European Indexes Stall

M&A rumors were in the news Friday

From Standard & Poor's European MarketScope

European indexes traded flat to lower Friday morning. Oil fell below US$58 a barrel. Wall Street was seen opening lower ahead of the Presidents' Day long weekend, with focus on a raft of economic data. Housing starts and permits, PPI and the preliminary Michigan sentiment index for February were expected.

UK: The FTSE 100 index slipped at mid-day to trade in the red with weak mining and energy stocks weighing on the index. M&A news flow continued: Defense stocks saw some gains after The Times reported that Boeing (BA) and Lockheed Martin (LMT) are eyeing British firms worth more than £5 billion in a bid to win work from the MoD.

Ultra (+1.18%), Cobham (+0.60%) and Meggitt (+0.64%) rose. British Airways (BAB) (-0.61%) and Goldman Sachs (GS) may bid for AMR Corp. (AMR), the parent of American Airlines, BusinessWeek reported. Cinven has abandoned plans for a rival consortium to bid for Sainsbury (-0.88%) over price concerns after its partner Texas Pacific joined the CVC-led team that is planning a takeover, The Times reported.

In company updates: the world's largest caterer Compass (+1.46%) said it is trading marginally ahead of expectations. Go-Ahead (-0.55%) posted a 17% rise in first half pretax profit to £50.9 million, saying second half outlook is positive. In broker action: Kingfisher (+2.69%) gained on a HSBC target upgrade, while Next (+1.56%) benefited from a Goldman upgrade to buy. Glaxo (GSK) (+1.42%) got a boost from a Citigroup target hike.

France: The CAC 40 index (unch.) pared earlier losses to trade flat at mid-session. Michelin (+4.69%), Arcelor Mittal (+1.63%) and EDF (+1.22%) led the gainers. JP Morgan added Michelin to its analyst focus list. The tire maker was the best performer, adding 3.8 points. Arcelor Mittal continued to gain on news that it will increase prices in Europe.

Goldman Sachs forecasted strong EDF fiscal 2006 EPS. On the downside, L'Oreal (-1.18%) and Sanofi (SNY) (-0.37%) weighed on the index following news that L'Oreal may use its 10% stake in Sanofi-Aventis to finance a possible major purchase, the company's CEO Jean-Paul Agon told La Tribune.

HSBC downgraded Bouygues (-0.91%) to neutral. Elsewhere, Steria (+0.88%) won an order from the Belgian government to run a project issuing identity cards to foreigners. In broker news, JP Morgan upgraded Cap Gemini (-0.37%) to overweight from underweight while UBS downgraded it to neutral. Citigroup and UBS downgrade Imerys (-2.19%) to hold and neutral, respectively.

Germany: The Xetra-Dax index(-0.06%) traded a fraction below breakeven as US stocks were set to open lower as investors awaited the latest report on the housing sector. Moderate declines are expected. Salzgitter (-2.92%) confirmed that it is in preliminary talks with Canada's Algoma Steel about a possible acquisition.

In other news, the European Commission is expected to fine several major lift manufacturers next week for taking part in a price-fixing cartel. The companies involved include ThyssenKrupp (+0.05%). It is understood that RWE's (-0.4%) supervisory board will, next week, decide over an early contract extension for CEO Harry Roels. Fraport (+0.81%) aims to cut costs of building the fourth runway at Frankfurt airport by up to €1 billion, the airport operator's CFO told the FTD.

Lanxess (-1.07%) was optimistic about its performance in 2007, CEO Axel Heitmann told Reuters, pointing to the group's ability to raise €1.5 billion in debt and use other instruments to buy companies. Medigene (+0.77%) obtained a European patent on endotag. Axel Springer (-3.45%) denied that its Russian unit is up for grabs, contrary to Russian newspaper Kommersant's report on the matter.

Key on the broker front, Cr. Suisse upgraded Qiagen (+2.86%) to outperform, UBS lifted its target on Rhoen Klinimum (+1.3%), sticking to buy, Dresdner performed a target hike on Infineon (IFX) (+0.91%), while Citigroup downgraded Takkt (-2.06%) to hold, lifting its price objective on the stock to €15.20.

Elsewhere: Mixed trading continued at mid-session in the Nordics while Spain's IBEX index remained one of the worst-performing European bourses at midday, with BBVA (-2.55%) hit amid concerns that it could be overpaying for US bank Compass Bancshares.

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