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Sep 18 - 24, 2000

UK-German market deal off

In a surprise move that throws the fate of Europe's largest stock market into question, the London Stock Exchange Tuesday abandoned a planned merger with its German counterpart the Deutsche Boerse, ending a combination fraught with problems from the start.

In calling off the merger, the LSE said it wanted to focus on fending off an unsolicited $1.2 billion offer launched two weeks ago by OM Gruppen, the operator of the far smaller Stockholm stock exchange. The merger of the German and U.K. bourses would have created an electronic exchange called iX, big enough to rival the Tokyo Stock Exchange, the world's third-largest.

"When the OM offer has been seen off, the board, in full consultation with shareholders and customers, will review the means by which London's pre-eminent role in European equities trading can best be promoted," said LSE Chairman Don Cruickshank, his words a recognition that many of the LSE's shareholders felt the exchange consulted too little with them over the plan to form iX.

The OM Gruppen bid, perhaps the final straw in disrupting the German-U.K. merger, brought into full relief the regulatory and managerial difficulties that faced the alliance. The Swedish group on Monday formal details of its unsolicited bid Monday. Under U.K. takeover rules, that triggered a 60-day deadline for LSE shareholders to accept or reject the offer, and forced the London exchange to respond.

The LSE has not discussed merging with any other bourses, Cruickshank said Tuesday. He made clear that the issue would be taken up at the exchange's general shareholders meeting, set for Thursday.

The Deutsche Boerse told that it received the LSE statement "with regret". A spokesman quoted Chief Executive Officer Werner Seifert as saying the Frankfurt exchange would "consider its options."

ECB holds rates steady

The European Central Bank on Thursday opted to hold the line on interest rates, keeping its key borrowing cost at 4.5 per cent, as expected. It also used its dollar reserves to buy euros — a move just short of market intervention, to help lift the ailing multi-country currency.

The central bank last raised its refinancing rate, the amount charged on two-week loans to commercial banks, at its Aug. 31 meeting, opting for a quarter-point increase to both bolster the euro and slow the pace of economic growth. Almost all economists polled in a Reuters survey predicted there would be no rate change this time around.

The rate decision followed a surprise announcement that the ECB has already begun using interest earned on its international currency holdings to buy euros in the open market — a move similar to, but not quite equivalent to market intervention. It was the first time in its 22-month history that the central bank opted to act in any direct way to stimulate demand for the depreciating currency.

Using the interest accrued since the bank began operations in January 1999, the ECB will spend the equivalent of about 2.5 billion ($2.17 billion) supporting the euro in the coming days, the central bank said. It said it informed the U.S. Federal Reserve and the Bank of Japan of its plans.

The euro rose as high as 87.38 cents following the announcement on the ECB's euro-purchase plan, then settled back to 86.78 U.S. cents after the rate decision. Representatives of the ECB meet every two weeks to discuss the progress of the euro zone economy and the direction of interest rates.

Separately, the European Union said that the economy of the 11-nation euro zone grew 3.8 per cent in the second quarter from a year earlier, the fastest pace since records began in 1992. The gain, along with surging oil costs and the falling euro, raised the region's consumer price inflation rate to 2.4 per cent in July, according to EU statistic agency Eurostat.

Japan GDP above estimates

Japan's economy expanded a stronger-than-expected 1.0 per cent during the April-to-June quarter, marking a second consecutive quarter of growth and offering more evidence that the nation is pulling out of its worst postwar recession.

The inflation-adjusted increase in gross domestic product from the previous quarter translated into a 4.2 per cent annual pace of growth, the Economic Planning Agency said on Monday.

The quarter-on-quarter GDP growth, which the government says will be key to deciding the size of a stimulus package aimed at ensuring the recovery doesn't sputter, compares with a median forecast of 0.7 per cent growth in a Reuters survey.

European techs ride again

Europe's major bourses closed higher Thursday amid strong gains for technology and telecom stocks as investors speculated that recent losses were overblown. Declines for oil shares limited the gains on key indexes after crude prices retreated from recent highs.

London's benchmark FTSE 100 index rose 77.3 points, or 1.2 per cent, to 6,555.5, with telephone and media stocks taking the lead.

The blue-chip CAC 40 in Paris rose more than 1 per cent to 6,637.91 and Frankfurt's Xetra Dax climbed 42.24 points, or 0.60 per cent to 7,048.50. In smaller markets, Amsterdam's AEX index was little changed at 677.32 and Italy's MIB 30 rose 0.6 per cent, but Zurich's SMI dropped 0.4 per cent.

The FTSE Eurotop 300 index, a basket of Europe's largest companies, gained 0.9 per cent, with sub-indexes for technology, telecom and computer services shares all up more than 2 per cent. The oil and gas segment was the leading decliner, off 2.8 per cent.

Import sanctions iced

President Clinton has put proposed luxury-goods duties on European goods on ice, according to a report Thursday.

Clinton delayed the publication of a new sanctions list after British Prime Minister Tony Blair argued last week that the 100 per cent duties would harm already shaky trade relations between the U.S. and the U.K., the New York Times said.

Among the items on the list are Scottish cashmere, Italian pecorino cheese and British shortbread; the sanctions would hike the price of British-produced cashmere substantially, for instance; some $50 million of cashmere is imported annually for U.S. consumers, the newspaper said.

The move likely will stave off, at least temporarily, a European Union backlash targeting U.S. exports, the paper noted. A senior administration official told the paper the move had placed the issue of import sanctions in "strategic limbo".

The U.S. Senate, meanwhile, is nearing passage of a trade bill with China.

Asia mixed in early trade

Key Asian markets opened mixed Friday as some telecom and technology stocks rebounded after a healthy overnight performance by the U.S. Nasdaq and European counterparts.

Hong Kong's Hang Seng index rose 0.09 per cent to 16,410.67, while the Australian share market slipped into the minus column by midday, down 11 points at 3,333.60.

Taiwan stocks rebounded more than 2 per cent, gaining 153.86 points to 7,306.15, with dominant electronics stocks leading the pack. World microchip foundry leader Taiwan Semiconductor jumped T$3.50 to T$123.50 after the firm said strong global demand would send its 2000 net profit soaring 160 per cent to T$64.002 billion ($2.06 billion) from a year earlier.

South Korea's KOSPI index fell 0.69 per cent to 645.68, off 4.5 points. Memory chip giant Samsung Electronics traded down 2.3 per cent at 230,000 won.

Mergers & Acquisitions

Ford—Daewoo: Ford Motor Co. said Friday it has dropped its bid for South Korea's troubled Daewoo Motor Co. In a brief statement, the No. 2 automaker said it would not make a final bid for the company. A deal had been expected to be completed by the end of this month.

B&N.com—Fatbrain: Online bookseller Barnes & Noble.com agreed to acquire Fatbrain.com Inc. Wednesday in a $64 million stock-and-cash deal that will expand the bookseller's reach in the business-to-business marketplace.

Inktomi—FastForward: Internet search engine and caching software provider Inktomi Corp. took aim at the burgeoning online broadcast market Wednesday, agreeing to buy closely held FastForward Networks for about $1.3 billion in stock.

AOL—Time: The proposed $129 billion America Online purchase of Time Warner hit a snag Wednesday as the government tried to determine what proposals it will seek from the companies before it grants approval of the union.

Bank Austria—HypoVereinsbank: Austria's takeover commission Wednesday cleared the way for Bank Austria AG to be bought in an agreed 7.4 billion ($6.42 billion) all-stock deal by Germany's HypoVereinsbank AG creating Europe's third-largest bank in terms of assets.

Diamond—Cluster: Diamond Technology Partners agreed to acquire Cluster Consulting for about $930 million in stock and cash in a move that will expand Diamond's wireless consulting services to Europe and South America.

Elan—Dura: Pharmaceuticals maker Elan Corp. agreed Monday to purchase U.S.-based Dura Pharmaceuticals Inc., a maker of treatments for infectious diseases and respiratory conditions, for about $1.8 billion in stock, bulking up Ireland-based Elan's presence in the United States.

Oracle: Oracle Corp. reported net income of $501 million, or 17 cents a share, up from $237 million, or 8 cents a share, in the year-ago quarter. Analysts polled by earnings tracker First Call/Thomson Financial had expected Oracle to earn 13 cents a share during the quarter.

Adobe: Graphic design software maker Adobe Systems Inc. reported net income, which includes non-operating gains and losses, was $78.3 million, or 61 cents per share.

Nike: Sports shoe and apparel maker Nike Inc. posted net income for the three months ended Aug. 31 of $210 million, or 77 cents per diluted share, up from $200 million, or 70 cents a share, in the same period a year earlier.

LVMH: LVMH, on Thursday reported a 31 per cent increase in half-year profit and raised its forecast for full-year earnings. The Paris-based group earned first-half operating profit of 762 million ($662 million), or 77 European cents a diluted share, up from 581 million, or 61 cents, a year earlier.

BAE: British defense contractor BAE Systems PLC posted a 34 per cent rise in first-half pretax profit Thursday. BAE (BA-) said pretax profit for the six months ended June 30 rose to £480 million ($679.8 million) from £358 million, while it sliced its net debt by £302 million to £523 million pounds.

Celltech: Celltech Group Plc reported, post-tax profit for the six months ended June 30 amounted to £10.1 million ($14.1 million) before one-time costs, compared with a loss of £5.8 million a year earlier.

Gold under pressure

Gold was seen under continuing pressure from the US dollar on Tuesday, but if nothing else rocked the boat traders were hopeful strong physical demand could hold the price above key $272.00 support.

Gas woes to sting Europe

With protests over high gasoline prices threatening to bring traffic to a standstill throughout the United Kingdom, economists are pondering the economic impact that skyrocketing fuel prices will have on the economies of Europe and the rest of the world.

Many economists are already re-jigging their forecasts for global economic growth for the remainder of this year and 2001 as oil prices around 10-year highs trickle down into the economies of the United Kingdom and countries in the 11-member euro zone, of which the U.K. is not a member.

And it's not just about the gasoline that individuals need to get to and from work each day. Shipments of food, clothing, medical supplies — virtually everything that needs to get from A to B on at least two wheels — is likely to go up in price, forcing producers to pass on their rising transportation costs to consumers and prompting buyers to think twice about forking out more for goods.

Bond prices plummet

The yield on the 30-year bond ended above that of the 10-year note Thursday for the first time since January, as a slew of companies selling longer-dated bonds weighed on these securities.

The benchmark 10-year Treasury note fell 13/32 of a point in price to 99-23/32. The yield, which moves inversely to price, rose to 5.78 per cent from 5.73 per cent Wednesday.

The 30-year bond dropped 1-5/32 points to 106-5/32, its yield soaring to 5.81 per cent from 5.73 per cent.

Mortgage rates slide

Mortgage rates slipped amid slower consumer spending and hopes of a cooling down of the economy, according to a report released this week by Freddie Mac. A 30-year fixed-rate mortgage (FRM) averaged 7.88 per cent for the week ending Sept. 15. The average for a fixed-rate 15-year mortgage was 7.60 per cent. A one-year adjustable-rate mortgage (ARM) averaged 7.26 per cent.

Jobless claims rise

The number of Americans filing new claims for unemployment benefits, after falling for two weeks, rose to 324,000 last week from a revised 311,000 the prior week, the government reported Thursday.

Import prices up 0.2%

U.S. import prices rose modestly in August as higher prices of petroleum and food were partially offset by lower prices for capital goods and automobiles, the Labor Department said Wednesday.

The government said import prices rose a weaker-than-expected 0.2 per cent in August after being unchanged in July. Economists polled by Reuters had expected a 0.5 per cent gain in import prices for August.

Schwab tops $1 trillion

Charles Schwab Corp. said Thursday it had surpassed $1 trillion in customer assets as of Aug. 31, putting the San Francisco-based brokerage among the top brokers in the country.

Company spokesman Dan Hubbard said Schwab is now the third- or fourth-largest brokerage in the country in terms of assets under management.

Google enters Japan

Google, one of the fastest growing search engines on the Web and Yahoo's new default search engine, says it has launched full search services in Japanese.

The Mountain View, Calif.-based company said in a release on Tuesday it has also launched Chinese and Korean search functions, bringing the range of its international services to 15 different languages.

Competition for an efficient search engine in Japan is still in the beginning stages, with Yahoo Japan acting as the nation's primary portal with nearly 1.4 billion page views a month, according to Nielsen/Netratings.

Fund managers bullish

U.S. fund managers have turned increasingly bullish on domestic stocks in hopes that the nation's economy is headed for a soft landing, according to the Merrill Lynch Gallup Survey released on Tuesday.

Bulls of the stock market outnumbered pessimists by the greatest margin since February 1995 and U.S. fund managers have moved overweight domestic equities in their global portfolios for the first time in 16 months.