(Updating with full report)
LONDON (AFX) - UK blue chips ended weaker, although off lows, helped by a surprisingly firm opening by Wall Street, as bargain hunters shrugged off stronger-than-expected CPI data, which almost guarantees another rate rise at the end of this month, dealers said.
The FTSE 100 index ended 12.8 points lower at 5,506.8, having fallen to 5,475.6 in early afternoon deals, while the broader indices also recovered from early losses.
Volume was above average, with 3.02 bln shares changing hands in 411,062 deals.
In the US, Wall Street enjoyed a positive morning as traders shrugged off stronger-than-expected CPI data, accepting that the Federal Reserve will raise rates at its next meeting on June 29.
The DJIA was up 58.00 points at 10,764.10, while the Nasdaq gained 12.56 points to 2,085.03.
The US Labor Department's Consumer Price Index posted a 0.4 pct increase in May, while the core inflation figure, which excludes energy and food prices, rose by a higher-than-expected 0.3 pct.
Fed Chairman Ben Bernanke and a parade of regional Fed governors have said in recent weeks that a rate of inflation above 2 pct is outside their comfort zone.
Back in London, AstraZeneca led the resurgent gainers with a rise of 74 pence to 3,016 as bid speculation boosted the stock.
'We're seeing a lot of buying out there,' one trader said, adding that 'there are no names in the frame though.'
Another London based dealer was less vague, saying he had 'heard Novartis or GlaxoSmithKline touted around', although cautioned that these were 'old rumours'.
Meanwhile, bullish broker comment lifted Lloyds TSB Group 12 pence to 515.
Morgan Stanley upgraded the stock to 'overweight' from 'equalweight' and raised its forecasts saying the bank could prove to be the top success story in the UK this year.
Asian-focused Standard Chartered also moved higher, adding 17 pence to 1,232.
BAE Systems remained under pressure, however, down 3-3/4 pence to 345.
The aerospace and defence group was hit by news that EADS unit Airbus, in which it holds a 20 pct stake, is delaying deliveries of the forthcoming A380 superjumbo.
Airbus told clients last night that deliveries of the A380 will be delayed by six to seven months because of production issues.
EADS, which holds the remaining 80 pct in Airbus, fell over 25 pct in France today.
Lehman Bros said that all Airbus A380 suppliers will see revenues deferred and noted that Goodrich in the US has already said the announcement will affect revenue and profits negatively, although not significantly.
In Europe, where sentiment is overwhelmingly negative, the broker said the whole aerospace/defence group could be affected.
Rolls-Royce lost 4-1/2 pence to 380-1/2, despite Lehman reassuring clients that the group seems relatively unaffected because of low-to-no profits on new original equipment deliveries, despite being the main provider of the A380 engines.
The insurance sector also came under pressure after Morgan Stanley cut its sum of the part valuations across the board following recent movements in capital markets and currencies.
The broker said it struggled to identify positive short-term catalysts for UK insurance stocks despite the attractive valuations.
Morgan Stanley's most severe cut was at Royal & SunAlliance Insurance Group, where the sum-of-the-parts target price was reduced by 7.9 pct to 117 pence, in part because of the group's gearing to its defined benefit pension scheme.
The broker retained an 'underweight' rating on the shares, which fell 4 pence to 117-3/4 at midday.
Friends Provident was also a faller, down 3-1/2 pence to 166-1/2, as the US broker retained its 'underweight' stance and lowered its valuation to 204 pence from 210.
However, the Morgan Stanley said it saw particular upside in Aviva and Legal & General Group shares, but cut its target prices, although less severely.
Aviva managed marginal gains of 6 pence at 705-1/2, while Legal & General climbed 0-1/2 pence to 119-3/4.
Back among the fallers, Tesco, albeit off earlier lows, lost 2-1/2 pence to 324-1/4 after an uninspiring trading update.
The supermarket said its first-quarter like-for-like sales excluding petrol grew 4.5 pct in the UK, at the lower end of market expectations, while UK like-for-like sales including petrol grew 5.5 pct.
'Solid, if unspectacular growth,' Panmure Gordon said, repeating its 'buy' recommendation and 400 pence target.
Sainsbury however, rose 7-3/4 pence to 318-3/4 as investors switched.
Royal Bank of Scotland eased 24 pence to 1,696, weighed down by an HSBC downgrade to 'neutral' from 'overweight' after yesterday's trading statement.
The UK broker told clients that yesterday's update appeared to signal some weakening revenue momentum, albeit compensated by a better than expected outcome on provisions.
WestLB disagreed, upgrading its stance to 'buy' from 'add'.
On the second line, AB Ports jumped more than 6 pct after a consortium including investment bank Goldman Sachs Group said that it has made a recommended 2.48 bln stg takeover offer for the port operator at 810 pence per share.
AB Ports shares were up 49-1/2 pence at 826-1/2 on hopes of a counterbid.
Traders noted talk that Dresdner Kleinwort Wasserstein was buying up stock in the market this morning, saying the broker was 'prepared to pay up to 830 pence for it'.
In a note to clients this morning, Dresdner Kleinwort Wasserstein repeated its 'buy' recommendation on AB Ports with an 810 pence target price.
'We think this is a fair price but not overly generous given the nature of the assets,' the German-owned broker said, adding that 'there remains the possibility of a higher offer'.
Jardine Lloyd Thompson added 23-1/2 pence to 345, bouncing back from recent heavy losses, with some vague bid talk also boosting the shares.
Woolworths was another gainer, up 0-3/4 pence to 30-3/4 after a trading statement.
In the 19 weeks to June 10, the 806-store strong main Woolworths chain saw like-for like sales, which strips out the impact of new and closed space, fall 6.7 pct. They had fallen 3.9 pct in the year to end of this January.
Richard Ratner, analyst at Seymour Pierce, described the numbers as 'awful' but said the first half is not that important to Woolworths. He is sticking with his full-year profit forecast of 35 mln stg.
He also shifted his stance 'unenthusiastically' from 'underperform' to 'hold'.
On the broker front, Morgan Stanley raising its rating to 'overweight' from 'underweight' helped to drive Stagecoach 3-3/4 pence higher to 101-3/4.
The broker's changes reflected its belief that the company will win the South West franchise this autumn, and on the back of a more attractive risk/reward balance after recent stock price underperformance.
On the downside, Spirent plummeted almost 14 pct, or 6 pence, to 37-1/2, after warning that its short-term profitability will probably be hit by delayed orders, the competitive market and its increased investment in product development, sales and marketing.
Citigroup said today's profit warning demonstrates the transitional nature of 2006 for Spirent.
Among mid-cap M&A activity, Expro International Group fell 78-1/2 pence to 636 after announcing it will pay 674.5 mln usd in cash and shares for Power Well Services, a supplier of well-testing services to the oil and gas industry.
Aegis Group was down 5-1/2 pence at 123-3/4, in line with market sentiment, shrugging off first-quarter results that were in line with expectations, as well as news that shareholders at its AGM have rejected French corporate raider and Aegis's biggest shareholder Vincent Bollore's proposal to appoint two members to the board. newsdesk@afxnews.com gl/lam COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited
© 2006 AFX News
