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European shares dip,utilities, retailers weigh

Written by: Staff
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PARIS, Mar 23 (Reuters) European stocks were slightly lower on Thursday, as upbeat outlooks from Pernod Ricard and Lufthansa were offset by weaker utilities and retailers, and the recent run of bid speculation showed signs of abating.

''We are still breaking new highs, but I think we are starting to run out of steam,'' said Edmund Shing, European Strategist with Kepler Equities.

''It is all M&A fuelled. The momentum is very much on the back of M&A stories, but there comes a point where things get too expensive to be taken over,'' he said.

The pan-European FTSEurofirst 300 index was down 0.14 per cent at 1,375.70 at 1130 GMT (1700 IST), after rising for 10 days in a row.

The index has rallied 8 per cent this year to near five-year highs, driven by a wave of mergers and acquisitions and stronger-than-expected results.

''Merger and acquisition activity in Europe has taken off over the first two months of this year. A total of 1,100 deals have been announced over this period,'' said Standard&Poor's Clive McDonnell in an equity research report.

''The value of deals proposed has surged to 231 billion euros, a 360 per cent increase compared with the same period in 2005,'' he said.

Kepler Equities' Shing said the market may now start to differentiate more between stocks, with a fall-out for those stocks that are not bid for.

''For now we are just creeping up on the back of the bid speculation. The question is when does that cool down a bit? The danger is we have a setback sooner rather than later,'' he said.

''The fundamentals are good, but I think the price is running ahead of the fundamentals at the moment, in terms of valuations expanding a bit too quickly,'' he said.

PERNOD, LUFTHANSA SHINE Strong results and a robust outlook boosted shares in Pernod Ricard, the world's second largest wines and spirits group, by 5.4 per cent.

''The guidance is going up and the numbers were above expectations across the board, particularly on the integration of Allied Domecq, which is one of the main focuses. The synergies, particularly on the distribution side, are running faster than expected, so it's pretty good news all round,'' said Shing.

Shares in German airline Lufthansa jumped 4.5 per cent after it said it expects this year's operating profit to at least match last year's, even as earnings growth is held back by a further 22 per cent rise in fuel costs.

''We believe that Lufthansa's earnings could recover significantly in 2006, driven by more stable revenue conditions and restructuring gains as its turnaround programme enters its third year,'' said Citigroup analyst Andrew Light in a research note.

Mining giant Anglo American was also a standout, gaining 4 per cent after it doubled its share buyback programme to PARIS, Mar 23 (Reuters) European stocks were slightly lower on Thursday, as upbeat outlooks from Pernod Ricard and Lufthansa were offset by weaker utilities and retailers, and the recent run of bid speculation showed signs of abating.

''We are still breaking new highs, but I think we are starting to run out of steam,'' said Edmund Shing, European Strategist with Kepler Equities.

''It is all M&A fuelled. The momentum is very much on the back of M&A stories, but there comes a point where things get too expensive to be taken over,'' he said.

The pan-European FTSEurofirst 300 index was down 0.14 per cent at 1,375.70 at 1130 GMT (1700 IST), after rising for 10 days in a row.

The index has rallied 8 per cent this year to near five-year highs, driven by a wave of mergers and acquisitions and stronger-than-expected results.

''Merger and acquisition activity in Europe has taken off over the first two months of this year. A total of 1,100 deals have been announced over this period,'' said Standard&Poor's Clive McDonnell in an equity research report.

''The value of deals proposed has surged to 231 billion euros, a 360 per cent increase compared with the same period in 2005,'' he said.

Kepler Equities' Shing said the market may now start to differentiate more between stocks, with a fall-out for those stocks that are not bid for.

''For now we are just creeping up on the back of the bid speculation. The question is when does that cool down a bit? The danger is we have a setback sooner rather than later,'' he said.

''The fundamentals are good, but I think the price is running ahead of the fundamentals at the moment, in terms of valuations expanding a bit too quickly,'' he said.

PERNOD, LUFTHANSA SHINE Strong results and a robust outlook boosted shares in Pernod Ricard, the world's second largest wines and spirits group, by 5.4 per cent.

''The guidance is going up and the numbers were above expectations across the board, particularly on the integration of Allied Domecq, which is one of the main focuses. The synergies, particularly on the distribution side, are running faster than expected, so it's pretty good news all round,'' said Shing.

Shares in German airline Lufthansa jumped 4.5 per cent after it said it expects this year's operating profit to at least match last year's, even as earnings growth is held back by a further 22 per cent rise in fuel costs.

''We believe that Lufthansa's earnings could recover significantly in 2006, driven by more stable revenue conditions and restructuring gains as its turnaround programme enters its third year,'' said Citigroup analyst Andrew Light in a research note.

Mining giant Anglo American was also a standout, gaining 4 per cent after it doubled its share buyback programme to $2 billion.

It is the second time in a month that the world's third-largest miner has increased the amount being returned to investors.

Record metals prices were also helping miners, with Rio Tinto up 1.7 per cent.

''Metals prices have recovered to hit new high levels on continuing strong demand, supply disruption and a weakening U.S.

dollar ... Expect mining equities to gain further value as metals prices remain stronger for longer,'' said Numis Securities analyst John Meyer in a note.

''Consolidation of the mining industry looks set to continue, despite the majors opting to return billions of dollars to shareholders through dividends and share buyback programmes,'' he added.

UTILITIES, RETAILERS SUFFER Shares in French utility Suez lost 2 per cent, as three top unions went on strike to protest the planned merger between Gaz de France and Suez that will reduce the government's stake in GDF from 80 per cent to a third.

A 24-hour strike by French state workers cut 8 per cent of EDF's generation capacity and lowered the pressure on GDF's network, the leading CGT union said.

EDF was down 2 per cent, while GDF shed 1 per cent.

Meanwhile Italy's biggest utility Enel kept investors guessing over its long-awaited bid for Suez, as it announced a 48 per cent rise in 2005 net profit and boosted its dividend payout. Enel shares slipped 0.4 per cent.

Retailers also underperformed, with UK fashion retailer Next losing 2.4 per cent as it reported a big slide in sales in the last few weeks.

''Trading at Next Retail for the past seven weeks was much worse than feared,'' said Citigroup analyst Richard Edwards in a note.

Shares in British grocer Morrison fell 3 per cent after it issued its first ever loss. Analysts at investment bank Morgan Stanley said the outlook for the group was disappointing and the stock looked expensive.

British retailer Monsoon was also suffering. Its shares slumped 7.5 per cent after it said its chairman had ended talks over buying the rest of the company and warned that annual results would be hit by tough trading conditions.

Among other losers, shares in Swatch fell 1.4 per cent after the Swiss watchmaker reported a 21 per cent rise in 2005 net profit, slightly below average expectations.

REUTERS SD DB2005 billion.

It is the second time in a month that the world's third-largest miner has increased the amount being returned to investors.

Record metals prices were also helping miners, with Rio Tinto up 1.7 per cent.

''Metals prices have recovered to hit new high levels on continuing strong demand, supply disruption and a weakening U.S.

dollar ... Expect mining equities to gain further value as metals prices remain stronger for longer,'' said Numis Securities analyst John Meyer in a note.

''Consolidation of the mining industry looks set to continue, despite the majors opting to return billions of dollars to shareholders through dividends and share buyback programmes,'' he added.

UTILITIES, RETAILERS SUFFER Shares in French utility Suez lost 2 per cent, as three top unions went on strike to protest the planned merger between Gaz de France and Suez that will reduce the government's stake in GDF from 80 per cent to a third.

A 24-hour strike by French state workers cut 8 per cent of EDF's generation capacity and lowered the pressure on GDF's network, the leading CGT union said.

EDF was down 2 per cent, while GDF shed 1 per cent.

Meanwhile Italy's biggest utility Enel kept investors guessing over its long-awaited bid for Suez, as it announced a 48 per cent rise in 2005 net profit and boosted its dividend payout. Enel shares slipped 0.4 per cent.

Retailers also underperformed, with UK fashion retailer Next losing 2.4 per cent as it reported a big slide in sales in the last few weeks.

''Trading at Next Retail for the past seven weeks was much worse than feared,'' said Citigroup analyst Richard Edwards in a note.

Shares in British grocer Morrison fell 3 per cent after it issued its first ever loss. Analysts at investment bank Morgan Stanley said the outlook for the group was disappointing and the stock looked expensive.

British retailer Monsoon was also suffering. Its shares slumped 7.5 per cent after it said its chairman had ended talks over buying the rest of the company and warned that annual results would be hit by tough trading conditions.

Among other losers, shares in Swatch fell 1.4 per cent after the Swiss watchmaker reported a 21 per cent rise in 2005 net profit, slightly below average expectations.

REUTERS SD DB2005

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