Euroshares off lows midday as Deutsche Bank, other financials gain

LONDON (Thomson Financial) - Europe's leading exchanges were off earlier lows midday as strong gains by a handful of heavyweight banking stocks offset losses by oil and utility plays.

At 11.43 am, the Dow Jones STOXX 50 was down 1.28 points at 3770.04 and the STOXX 600 was down 0.46 points or 0.12 pct 376.52.

Spread bettors, IG Index, said the Dow looks set to fall 40 points as it re-opens after the Labor Day holiday yesterday, with investors looking ahead to a key manufacturing report and construction data to help provide direction.

Deutsche Bank jumped 2.53 ahead after reassuring comments by its chief executive Josef Ackermann. He said the company is not exposed to further deterioration of the US sub-prime loan market, putting pay to recent rumours that the banking group would announce a higher exposure than previously stated.

Societe Generale added 2.24 pct after Merrill Lynch upped its stance to 'buy' from 'neutral'. KBC added 1.13 pct as it was also upgraded to 'buy' by the US broker.

Merrill Lynch also downgraded Lloyds TSB, down 0.37 pct, to 'neutral' from 'buy'.

Elsewhere, among financials, Swiss Life added 0.69 pct after the group reported a stronger than expected set of interims and said it expects to achieve its 2008 profit target a year early.

Standard Life was also higher after its numbers beat expectations and after recent underperformance. Shares added 0.16 pct.

Brit Insurance, though, fell 3.46 pct after the Lloyds insurer and re-insurer warned that second half profits may not be as good as those posted in the first half.

Elsewhere, Repsol moved 0.83 pct lower following news late yesterday that Algerian state oil company Sonatrach dismissed Repsol and Gas Natural from a 5 bln eur project to develop natural gas in the country.

Analysts said the project was key for Repsol to diversify its assets outside Argentina and to guarantee future reserves.

They noted however that it should not have an impact on the company's earnings in the short run.

"Our initial concern was about Repsol's reserves, but all considering, the stock isn't performing too badly. Analysts now seem to think that the impact is going to be limited," a trader at a leading international investment bank said.

Gas Natural slipped 1.81 pct. "Gas Natural is getting punished, however, as we still don't have much information on the longer-term impact for them," one trader noted.

Peers Suez and Gaz de France added to yesterday's losses amid ongoing investor concern about the likely timing and final pricing of their planned merger.

Analysts continue to welcome the deal and expressed some surprise at the selling pressure on the shares.

"We maintain our view that this is a positive deal that is likely to close sooner rather than later," analysts at UBS said, in a note.

Dexia raised its stance on Suez to 'buy' from 'neutral' noting, that given the merger's parity, "Suez shares would deserve to trade at 40.88 eur versus yesterday's close of 40.36".

Natixis analysts on the other hand downgraded their recommendation to 'add' from 'buy', to reflect the evaporation of the speculative interest which had driven gains prior to the merger announcement.

PSA Peugeot Citroen shed 1.33 pct as investors suggested the group's targets -- announced this morning -- may be too ambitious.

"Peugeot's margin targets are based on extraordinarily optimistic assumptions about European sales growth, emerging markets expansion, and cost reductions," UBS said.

In further M&A news, Valeo and Leoni were in focus after revealing that they were in talks about a potential sale of Valeo's wiring business Valeo Connective Systems to Leoni.

"This is an excellent deal, as Leoni is finally gaining access to French automotives, namely PSA and Renault," said Sal Oppenheim in a note.

Shares in Leoni were 3.85 pct higher while Valeo added 1.86 pct.

Nestle slipped 0.67 pct following news it plans to take over water bottling group, Henniez.

Lindt & Spruengli was 0.55 pct lower after reports it is planning to bid for Godiva.

In the staffing sector, Hays down 3.6 pct amid reports Dresdner Kleinwotrt placed 17 mln shares in the UK group and as traders say the group's management issued cautious noised on its conference call. The news overshadowed better than expected numbers from the group this morning.

Randstad was 1.02 pct lower and USG People and Vedior fell 1.54 pct and 0.48 pct respectively after data showed a slowdown in Dutch staffing market sales.