European Prices Fall, But Asia Up

Investors eyed rising energy prices and worried about the U.S. economy

European indexes fell but Asian ones rose on Thursday, as investors eyed rising energy prices and worried about the U.S. economy.

In Germany, Schering (+1.72%) won US approval for its menopause drug Angeliq, competing with Wyeth's PremPro. Angeliq is already used in Europe. In another development, Schering ended its pact with Praecis of making and distributing its prostate cancer drug, as Praecis has won approval to do it itself. Porsche (-0.8%) now owns over 10% of VW (-2.69%). Meanwhile, VW is still in talks with Proton regarding a possible tie-up with the Malaysian group, reported Star Newspaper. Also, VW may sell its stake in Scania, worth SEK11 billion, according to daily Dagens Industri. Remaining in the car sector, BMW (-0.08%) saw CSFB lift its target on the stock to EUR 48 from EUR 40 as it sticks to outperform. RWE (-0.54%) is reportedly looking for small to medium-sized acquisitions in eastern Europe. Infineon (-0.13%) is widening its cooperation with Nanya. Merck (+2.01%) has agreed a pact with Takeda to develop and market cancer drug matuzumab. Merck gets an upfront payment of EUR 60 million, to be booked in the third quarter, and also milestone payments. Hanover Re (unchanged) sees up to a EUR 150 million impact from Hurricane Rita before tax. Its 2005 profit forecast remains unchanged. Elmos (-7.19%) continued to slip after Tuesday's profit warning.

The U.K.'s FTSE ended Thursday's session lower. Oil stocks provided some support for UK action today, as did an upgrade of Hilton. But not enough to compensate for losses at Vodafone, profit-taking in the mining sector and the weak trading update from Boots. Also, UK house prices fell for a second month in September, according to Nationwide: HBOS (-0.63%) felt the pinch. BP (+0.66%) and RDS (+0.51%) benefited from higher crude oil prices. O2 (unchanged) saw more takeover speculation. The Times newspaper highlighted interest from NTT DoCoMo. Among earnings reports today, Boots (-3.26%) was in poor shape as sales growth in Boots The Chemists (BTC) in the first half is expected to be 1.1%, or down 1.3% LFL, hit by regulatory price deflation in Dispensing. Good trading figures from LSE (-0.18%) were used as an opportunity to lock in profits, but 3i (+1.68%) remained well bid as the venture capitalist group presented realisation proceeds totaling GBP910 million in the five months to August. Among broker changes, UBS boosted steel stocks across Europe, raising targets across the board: Corus (+0.95%). Hilton (+2.44%) clocked up gains thanks to a target hike from ABN. But HMV (-4.05%) extended yesterday's fall as brokers took a red pen to their targets.

France's CAC 40 (-0.45%) registered further losses at the close. Total (+0.31%) remained modestly higher. Meanwhile, prudence prevailed as French Finance Minister Thierry Breton said the country needs to stabilise its public finances. Danone (-2.04%) took a knock on market talk it could acquire Numico, an issue highlighted by a Natexis research note last week. Danone's move would be intended to ward off any possible hostile bids. Numico denied such talk. L'Oreal (-0.54%) turned red after dropping out of the race to woo Japan's Kanebo. Air France (-1.08%) fell after hiking surcharges for the fifth time since May on higher oil prices. Veolia Environnement (-0.6%) slipped despite landing a 30-year EUR 800 million contract in ChangZhou, China. Publicis (-0.53%) was negative as it signed an agreement with the UK's Aegis in order to fend off rival hostile bids, according to the Financial Times. Meanwhile, Rhodia (+5.52%) bucked the trend, climbing up the SBF120 after it announced it will resume production at three sites on the US Gulf coast after Hurricane Rita caused only minor damages.

Not all markets were weaker. In Tokyo, the Nikkei 225 climbed 181.33 points (1.35%) to 13,617.24, a four-year high. The impetus is the same one that has driven the near vertical ascent in Japan's market turned the corner after a decade of malaise. This has attracted investment capital from abroad as well as locally. Quarter-end window dressing by fund managers may also have contributed to gains.

Stocks rallied in Hong Kong as well, boosted by activity related to the expiration of Hang Seng futures. Window dressing prior to the end of the quarter likely contributed to market gains. The Hang Seng index closed just shy of its session high. Gains were accompanied by a jump in volume to above the 50-day average. Advancing issues dwarfed declining issues by 30 to 1.

Stocks rose modestly in Seoul, pushing the KOSPI index to an all-time high. The South Korean market has also benefited from foreign investors seeking superior gains outside the U.S. and some of the major European markets.

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report.
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