Wednesday June 25, 12:03 PM
German shares higher midday but investors brace for interest rate decisions
FRANKFURT (Thomson Financial) - German shares were slightly higher in midday trade as the local market rebounded from losses on Tuesday helped by M&A speculation surrounding Deutsche Postbank (Xetra: 800100
- news) and an anticipated higher opening on Wall Street this afternoon.
Dealers said, however, that gains were capped by a general caution among investors ahead of the U.S. Fed's rate decision this evening and following rate decision from the ECB next week.
At 12.35 p.m., the DAX (Xetra: news) was up 50.87 points, or 0.78 percent, to 6,586.93, having traded between 6,547.71 and 6,594.64.
The MDAX added 71.61 points, or 0.77 percent, to 9,320.66, while the TecDAX (Xetra: news) was 12.59 points, or 1.57 percent, higher at 815.11.
DAX futures fell 38.50 points, or 1.01 percent, to 6,654.50, while bund futures were 0.14 points, or 0.13 percent, higher at 110.37.
The euro traded at $1.5587, compared with 1.5570 in morning trade in London.
A local trader noted that the market was higher at the moment, but said that trade volumes were still relatively light as many investors were adopting a cautious stance ahead of the two key interest rate decisions.
The trader said that comments from European Central Bank President Jean-Claude Trichet on Wednesday had put a slight damper on trade.
Trichet said the ECB cannot control sharp price rises resulting from external forces, but it can deliver euro zone price stability by ensuring that these rises in food and energy prices do not trigger a domestic wage-price spiral.
He said the ECB remain in 'a state of heightened alertness.'
Across the Atlantic, the U.S. Federal Open Market Committee, the central bank's monetary policy body, is widely expected to leave its fed funds rate unchanged at 2 percent.
But economists at IFR Markets said the Fed is likely to use the statement accompanying its decision to underline its concerns about inflationary pressures in the economy.
On the Frankfurt trading floor, Deutsche Postbank led gainers, surging 3.87 euros, or 7.14 percent, to 58.07 as vague rumours that Lloyds TSB is considering launching a bid heated up M&A speculation surrounding the Deutsche Post AG (Xetra: 555200 - news) unit.
'I've heard talk of a bid valuing the bank at 11 billion euros or 67 euros per share,' said a trader.
'There could be a press announcement soon, and we think that Postbank could go for as much as 60-65 euros per share at least,' said a second trader.
Postbank's peers were also higher as demand for financials was spurred on by news that Barclays Plc. confirmed plans to raise 4.5 billion pounds via an issue of 1.58 billion shares, with a number of large investors taking stakes in the bank, including the Qatar Investment Authority and Sumitomo Mitsui Banking Corp.
Commerzbank (Xetra: 803200 - news) was 0.47 euros or 2.41 percent stronger at 19.97, Deutsche Bank (Frankfurt: DB9999 - news) added 1.08 euros or 1.87 percent at 58.71.
M&A talk boosted shares in Continental (Frankfurt: A0SLLY - news) , which added 3.12 euros, or 5.08 percent at 64.57.
Traders said they had heard talk that a private equity firm, perhaps Blackstone (NYSE: BX - news) or U.S.-based KKR might be eyeing launching a bid.
'This newest round of rumours surrounding Continental has been around since Monday afternoon, and didn't seem to be having an affect on the stock at first,' said a Frankfurt-based trader.
At the other end of the DAX index, ThyssenKrupp (Xetra: 750000 - news) shed 0.83 euros, or 2.02 percent at 40.17, as traders pointed to pressure on the steel sector caused by high iron ore prices and losses on steel producers in Asian markets overnight.
Dealers also said the sector was currently out of favour as investors were reducing their positions in cyclicals in favour of financials.
Hypo Real Estate (Xetra: 802770 - news) , the only financial in negative territory, dropped 0.17 euros, or 0.81 percent at 51.66 after JP Morgan downgraded its stance to 'underweight' from 'neutral' and reduced its target price to 20 euros per share from 20.95, saying it continues to see difficult trends for commercial real estate and still-widening bond spreads that reduce gains from asset sales.
Over on the MDAX (Xetra: news) , Demag Cranes (Xetra: DCAG01 - news) led gainers. Sal Oppenheim reiterated its 'strong buy' rating on the stock after a field trip to Demag Cranes' Port Technology manufacturing site in Duesseldorf on Tuesday.
At the other end of the mid-cap index, GAGFAH (Xetra: A0LBDT - news) plunged 1.22 euros or 11.91 percent at 9.02, Merrill Lynch (NYSE: MER - news) reduced its price target on the real estate property manager to 6 euros per share from 10 euros and reiterated its 'underperform' rating.
TecDAX-listed Versatel (Xetra: A0M2ZK - news) was the strongest performing on its index, up 0.80 euros, or 5.37 percent, at 15.70, while Draegerwerk (Dusseldorf: DRW7.DU - news) lost 0.39 or 1.06 percent at 36.41 at the other end.
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