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LONDON (Thomson Financial) - UK blue-chips closed down, with Sainsbury among the main casualties after CVC withdrew its 582 pence per share bid; while higher oil prices spooked investors, who remained cautious ahead of the release of the March FOMC minutes, dealers said.
At the close, the FTSE 100 index was 4.5 points lower at 6,413.3, falling back from earlier highs of 6,445.9 albeit well off lows of 6,401.9.
The broader indices were mixed.
On Wall Street, bluechip stocks were lower in cautious trade ahead of the release of the minutes from the last FOMC committee meeting in March.
US investors will be eyeing the minutes for 'clues as to why the Fed changed the wording of the statement last time around', according to a note by Bear Stearns.
Although the FOMC kept its key repo rate at 5.25 pct in March, it appeared to soften its rhetoric, talking of 'future policy adjustments' instead of the old phrase 'additional firming'.
The DJIA lost 81 points at 12,493.1.
Meanwhile, oil prices rallied after weekly US inventory data showed a much larger than expected decline in gasoline stocks, sparking fears supplies of the fuel might be stretched tight ahead of the peak-demand summer season.
The US Energy Information Administration said gasoline stocks fell by 5.5 mln barrels in the week ending April 6, leaving them 'just below the lower end of the average range' for this time of year.
Analysts polled by Thomson Financial News were expecting gasoline stocks to decline by only 1.2 mln barrels on the week.
New York, light sweet crude took on 36 cents to 62.25 usd per barrel.
BP added 5 pence to 560 with Royal Dutch Shell up 8 pence at 1,696.
On the London trading floor, Sainsbury was among the biggest casualties, running back 12-1/2 pence to 526 after the CVC-led consortium that was assessing a 582 pence per share offer fconfirmed it is no longer considering a bid, prompting Seymour Pierce to downgrade the stock to 'sell'.
The consortium, which also includes Blackstone Group International Ltd and TPG Capital, said that after discussions with Sainsbury's board, it became clear that it would 'be unable to make a proposal that would result in a successful offer'.
In response, Seymour Pierce downgraded its recommendation on the supermarket group to 'sell' from 'hold'.
However, in light of CVC Capital Partners' failed bid, Robert Parkes, equity strategist at HSBC, said 'We don't see the wheels coming off the private equity wagon,' adding that 'we still see another good year for M&A activity in 2007.'
Parkes said private equity buyouts, if anything, are likely to get larger. On the downside, property stocks weighed as Lehman Brothers downgraded the European real estate sector to 'neutral' from 'positive' and cut price targets across the board by around 4 pct.
In a note to clients, the broker also downgraded Land Securities, British Land, Hammerson, and Slough Estates to 'equal-weight' from 'overweight'.
British Land was down 11 pence at 1,566, Slough Estates lost 4 pence at 7,986, Land Securities slipped 20 pence at 2,172 and Hammerson fell back 25 pence at 1,687 -- further hit by going ex-dividend this morning.
Other ex-dividend stocks also weighed with BG Group, Friends Provident, Prudential and Kazakhmys shaving about 2.5 points off the FTSE 100.
Kazakhmys was in further focus as copper prices lost about 1.5 pct in Asian trade as investors cashed in on recent gains.
And sentiment was further hit by news Yong Keu Cha, its former chief executive, is selling his remaining 4.5 pct stake in the copper miner.
The placing of the shares will be done via an accelerated bookbuild, with Credit Suisse Securities acting as the bookrunner.
Still in the sector, Vedanta Resources gave up initial gains to go back 26 pence to 1,406, as weak metal prices and a cautious outlook statement offset a rise in fourth-quarter production.
On the upside, Marks & Spencer led the blue chips higher, taking on 20 pence at 715, as investors welcomed the latest BRC Retail Sales Survey, which showed a stronger-than-expected rise in like-for-like sales.
The survey showed that food sales strengthened after dipping in February from January's six-month high, while clothing and footwear benefited from the warm spring weather which also gave a good boost to outdoor DIY and gardening. Home and leisure were very mixed though.
Reacting to the data, Seymour Pierce said the survey confirmed sales have been driven by food and clothing which is proof of what it has been saying about the ladies fashion sector.
The stock was also surrounded by vague market talk of venture capital interest in the retailer, which Seymour Pierce was ready to dismiss.
The broker said that a private equity bid is unlikely given the excellent performance of management in the face of the current competitive environment.
M&A hopes gave a further fillip to Alliance Boots, 15 pence better at 1,050, on the back of a report the group has agreed to open its books to private-equity firm Terra Firma.
The Daily Telegraph said the board of the health and beauty retailer, which was approached by Guy Hands' Terra Firma over Easter, has been persuaded the consortium is a 'credible' party.
The decision ignites the takeover battle for Alliance Boots, which looked certain to fall to an indicative 10.1 bln stg offer by Italian billionaire Stefano Pessina and his private-equity backers Kohlberg Kravis Roberts.
Also performing strongly and bucking the general negative mining sector trend, Xstrata rallied 24 pence to 2,779, following news the Anglo-Swiss miner has sold its aluminium assets to private-equity investor Apollo Management for a total of 1.15 bln usd cash.
The deal had been anticipated, but the price is better than expected, with Credit Suisse understood to have put a 750 mln usd price tag on the business.
The deal was also supported by a couple of bullish broker comments, including a target hike by Lehman Brothers and Credit Suisse.
Credit Suisse said that in raising Xstrata's target to 3,300 pence, its underperformance compared with BHP Billiton could be coming to an end as the market becomes increasingly confident in the sustainability of the current upward move in metal prices.
Positive broker comment also lifted Severn Trent, up 15 pence at 1,480, after Morgan Stanley upped its stance to 'equal-weight' from 'underweight', with a raised price target of 1,570 pence from 1,300, as part of a water sector review.
The broker also lifted its stance on Northumbrian Water to 'overweight' from 'equalweight' and increased the target to 370 pence from 305, sending the mid-cap's shares 8 pence higher at 329-1/4.
On the second-line, Northgate Information Solutions topped the gainers board, jumping 4.7 pct to 88, after The Times' Rumour of the Day questioned whether the IT group could be attracting bid interest again, and further boosted by bullish comment from Morgan Stanley.
The broker upped its stance to 'overweight' from 'equal-weight' with a raised price target of 100 pence from 95 pence, and said Northgate is its top pick in the sector given the group's compelling risk-reward.
Elsewhere, British Energy gained 21 pence at 518 after the energy supplier was initiated a 'buy' with a 654 pence price target at ABN Amro, which argued the current share price undervalues the company's current assets.
ABN Amro said it thinks there is a strong likelihood the company can create significant value from new nuclear projects. tf.TFN-Europe_newsdesk@thomson.com ze/slm COPYRIGHT Copyright AFX News Limited 2007. 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
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