Oil Supports London Stocks

Ivaylo
15 Dec, 2006
New York City

London market hit a new five year high on Friday afternoon, as upbeat crude prices lifted oil stocks and shares in BAE Systems advanced supported by reports of the failure of an inquiry into allegations of corruption within key Saudi arms contracts. Tobacco stocks were in the limelight in the wake of the agreement by Gallaher to be acquired by Japanese Tobacco in a long-awaited deal. In mid-afternoon, the FTSE 100 benchmark index traded 0.5% higher to 6,261.6.

[R]9:30AM The London benchmark index gained Friday on firmer oil stocks.[/R]
In mid-afternoon, the FTSE 100 benchmark index traded 0.5% higher to 6,261.6 above the previous five-year high in November of 6,256.0.

Advancers

News of the OPEC plans to reduce crude production by 500,000 barrels a day boosted oil companies. BP was 0.5% higher and Royal Dutch Shell advanced 0.4 %.

As the Serious Fraud Office of the UK yielded to political pressure to end its investigation of corruption allegations focused on Saudi defence contracts and the Al Yamamah oil-for-arms contracts with BAE, the company gained 5.5 %.

The tobacco shares also increased after Gallaher confirmed its agreement to be acquired by Japan Tobacco for 11.40 pounds per share, valuing it at 7.5 billion pounds. Expectations of a wider consolidation lifted Imperial Tobacco by 0.5% and British American Tobacco by 0.7%.

Prudential benefited from Merrill Lynch decision to raise its price target on the stock. Shares in the insurer were 2.8%.

Decliners

On the opposite end was Corus declining 1.2 % on worries that Tata Steel could be about to withdraw from the bidding war for the Anglo-Dutch steelmaker, paving the way for its acquisition by CSN of Brazil.

Gallaher bucked the trend in tobacco stocks and fell 0.4%, moving toward the offer price after a stronger run in anticipation of the deal and little talk of a counter offer.

[R]7:30AM Asian stocks advanced on Friday supported by a strong finish in Japan.[/R]
Asian markets closed higher on Friday. Japanese Nikkei 225 Stock Index gained 0.5% to close at 16,914.31. The tankan sentiment index for large manufacturers advanced to 25, up one point from the September figures and matching expectations. Shares of Japan Tobacco advanced 3.1% after saying it has agreed in principle to buy British cigarette maker Gallaher Group in a deal standing at $14.8 billion.

The Hang Seng Index in Hong Kong advanced 1% to 19,110.65. IPO led the gainers. Neo Neon advanced 30% and China Communication Construction surged 38%. Mainland China oil producers gained as oil prices advanced after the OPEC announced it plans to reduce production. PetroChina added 1% and Sinopec gained 2%.

The Korea Composite Stock Price Index, or Kospi, in South Korea, moved 0.25% higher to 1,421.87. Kookmin Bank, the largest lender by assets in South Korea, gained 2% on foreign buying. Posco advanced 2.1% after reaching a new high during the session on expectations of higher dividends and positive earnings for next year.

Other markets around the region also gained with Australia S&P/ASX 200 rising 0.1% to 5,557.00. Singapore Straits Times Index rose 0.5% to 2,931.29 and Taiwan Weighted Price Index gained 0.8% to 7,538.82.

[R]6:30AM European stocks advanced on Friday in quiet trading with M&A bids.[/R]
European markets gained on Friday. The FTSE 100 started the day 0.3% higher at 6,246, while the German Xetra Dax added 0.4% at 6,577.18 and the French CAC 40 advanced 0.5% to 5,534.64.

Corporate news

Japan Tobacco, the third-largest cigarette maker in the world, agreed to buy Gallaher in the biggest overseas takeover of the nation.

Advancers

Altadis SA led advancers as tobacco companies after Japan Tobacco Inc. agreed to buy Gallaher Group Plc for 7.5 billion pounds ($14.7 billion). Altadis, the largest tobacco company in Spain, added 1.1%. Citigroup Inc. upped a recommendation on the shares to `buy'' from hold, announcing the company is a possible target as takeovers in the industry continue.

Swedish Match AB, the second-largest producer of smokeless tobacco products in the world, advanced 0.8%.

France Telecom rose 1.9% after it reiterated its financial targets for 2006. Altana firmed 0.9% after Deutsche Bank upgraded the chemicals company to buy from hold and lifted its price target.

Carmakers were in great demand. Fiat rallied 2.6% after its European market share jumped to 7.6% from 6.5%. Renault SA gained 1.2 %. Porsche AG surged 1.2%. Separately, WestLB AG raised its recommendation to hold from reduce and lifted its price estimate for the shares by 27%.

Decliners

Ahold fell 1.1%, erasing some gains on Thursday, which were prompted by talk of a bid talk for the Dutch retailer from KKR, the private equity group. Sources close to KKR have played down the prospects of it making an offer.

Oil and gold

Crude oil for January delivery advanced 36 cents, or 0.6%, to $62.87 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract traded at $62.72 a barrel in early trading in London.

Gold for immediate delivery was at $625.45 an ounce today. It is little changed this week, after dropping 3.2% last week.

Currencies

The euro bought $1.3166 early Friday, up from $1.3152 in New York the previous day. The British pound also gained on the dollar at $1.9627, up from $1.9611 in New York overnight. The dollar remained strong against the Japanese yen, buying 117.97, up from 117.86 on Thursday.

[R]5:00AM Gold futures dropped on Thursday due to the rising US currency.[/R]
Gold for February delivery ended down $1.50 at $630.90 an ounce on the New York Mercantile Exchange. March silver futures advanced 3.5 cents to finish at $13.95 an ounce, while January platinum added $4.90 to close at $1,112.70 an ounce and March palladium added $1.35 to $331.05 an ounce. March copper futures moved 2.45 cents higher to close at $3.0575 a pound after closing Wednesday at its lowest level since late June.

The front-month January oil contract for U.S. light crude gained $1.14, or 1.86%, to $62.51 a barrel. In London, the expiring Brent crude contract for January delivery advanced 79 cents to $62.12 a barrel. At the retail level, the average price for a gallon of regular unleaded advanced to $2.291 Thursday, from $2.289 on Wednesday.

Wheat for March delivery rose 3 cents to $4.91 1/2 a bushel. March corn gained 3 1/2 cents to $3.71 3/4 a bushel while March oats moved 3/4 cent to $2.64 a bushel. January soybeans advanced 1 3/4 cent to $6.62 3/4 a bushel.