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THE ECONOMIC MONITOR - U.K.

MARKET BRIEFING  Britain's top share index ended higher as banks surged on relief that new capital rules were not more demanding, and miners rose with

metals prices as Chinese data prompted optimism. Chinese industrial production jumped a better than expected 13.9% year-on-year inAugust, calming fears about the global slowdown. Among the miners Kazakhmys, Antofagasta and Vedanta topped the list. Bankswere among the top risers after a less stringent than feared Basle III decision by the European banking body but none of them are inthe top performers. New capital requirements, known as Basel III, will demand banks hold top-quality capital totaling 7 percent, against

the present requirement of 2 percent, of their risk-bearing assets but a long lead-in time eased fears that lenders will have to rush toraise capital. The FTSE 100 closed up 1.14% or 62.95 points at 5564.59. The FTSEurofirst 300 of top European shares rose 0.66 percentto end at 1,088.20 points, the highest close in more than four months.

Sterling rose against a broadly weaker dollar as upbeat Chinese data and an agreement on new banking rules boosted appetite for riskbut it lagged the euro, which is likely to gain more from strong Chinese growth. Data at the weekend showed Chinese factories rampedup production in August and money growth topped expectations, indicating the economy remained buoyant despite governmentefforts to clamp down on bank lending and property speculation. But the pound's gains were hampered by caution about the U.K.economic outlook. By 1507 GMT, sterling rose 0.5 percent to $1.5423, paring gains after rallying to a session high at $1.5488. Chartswere pointing to sterling weakness in the medium-term. The euro outperformed against sterling to trade 1.0 percent higher on the dayat 83.40 pence.

British gilt futures fell, weighed down by an equity rally after new bank capital rules were agreed at the weekend, but prices werevolatile in the absence of any other news to provide direction. Government bonds had come under heavy selling pressure early in theday as equity markets rallied in relief that global regulators were giving lenders a long time to comply with the new Basel III rules on

bank capital. By 1219 GMT, the December gilt future was down 26 ticks at 122.24, outperforming the equivalent Bund by around 14ticks. In the cash market, the yield on 10-year gilts was almost 3 basis points higher at 3.156 percent, tightening the spread againstBunds by around 4 basis points to 70 basis points.

Oil rose to a one-month high, spurred by an extended shutdown of a major Canada-U.S. crude pipeline and strong Chinese demandgrowth and industrial output. U.S. crude for October climbed to $78.04 a barrel, the highest price since Aug. 11, and was up $1.40 at$77.85 by 1411 GMT. London Brent rose $1.12 to $79.28. Enbridge's Line 6A pipeline carrying Canadian crude oil to U.S. refineries andthe crucial Cushing, Oklahoma oil hub, remained shut as workers continued digging around a leaky section of pipe in Romeoville,Illinois. Data from the world's second-largest oil user also boosted prices. Reflecting accelerating industrial activity, China's implied oildemand rose by 7.4 percent in August from a year earlier.

Gold steadied, partly shrugging off the weight of positive investor sentiment stemming from a deal on global banking rules, upbeatChinese data and a rally in risk-linked assets. Other industrial commodities such as crude oil, platinum group metals and copper allbenefitted from the perception that the outlook for global growth had brightened somewhat. The agreement among global regulatorson bank capital rules (Basel III) requires the sector to raise hundreds of billions of euros, but over a longer timeframe than originallyexpected, which boosted financial shares. Spot gold prices were at $1,245.75 an ounce by 1445 GMT, against $1,245 in New York onFriday. Yet prices remain within around 1.5 percent of the all-time highs set in late June at $1,264.90 when investor nervousness was

heightened. U.S. December gold futures rose $1.6 ounce to $1,248.10.

FTSE 100

MARKET PERFORMANCE

A. Banks and miners were among the top risers in a buoyant FTSE100. RBS led banks higher, with the sector reacting positively tothe new Basel III rules on banking reserves that were announcedlast night. Lloyds was also strong. In the mining sector, Xstrata,

Kazakhmys, Rio Tinto, Anglo American and Antofagasta werein demand as metals prices move ahead. FTSE 100 up 36 at 5,538.

B. The FTSE 100 was up 60 at 5,562. Miners remained the forcebehind today's gains, offsetting weakness among utilities.Defensive stocks like United Utilities, Severn Trent, Scottish &Southern Energy and Centrica were down.

C. Index was still around four-month highs after the U.S. got off to agood start. U.S. exposed building supplies group Wolseley wasnow the top riser here. FTSE 100 is up 66 at 5,569.

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COMPANY NEWS

Chinese investors face obstacles on Prudential deal

Potential Chinese bid for Britain's Prudential faces numerous hurdlesand would proceed only if an initial public offering from Asian rival AIAproves too expensive, bankers and analysts said. The company shares

 jumped as much as 4.5 percent on Monday.

The investors included Go Guangchang, chairman of China's FosunInternational, and Fred Hu, previously chairman of Goldman Sachs inChina. The biggest hindrance for any takeover would be offloadingPrudential's U.S. and U.K. divisions at an attractive price, analysts predict.But sources revealed that Clive Cowdery's Resolution was the onlyobvious buyer for the U.K. business.

AB Foods expects profits to soar

AB Foods expects its forthcoming results to be better than last year asretail business Primark continues to power ahead, while sugar profitshave recovered. Like-for-like sales growth of 6% is expected for the full

year driven by a very strong performance in continental Europe andcontinued good growth in the U.K. The company also said that inflation,higher cotton prices, freight costs, the increase in VAT, implemented inSpain in July could put pressure on margins next year.

Lloyds optimistic on income growth

Lloyds Banking Group is assured of its capital strength, and expects itsincome growth this year to be on good track, one of its directorsannounced. Truett Tate told in a conference organized by investmentbank Keefe, Bruyette & Co that the company expects to deliver goodyearly income growth and the bank also expects its capital ratios "tostrengthen materially over the medium term."

Province Equity may sell Phones4U: Paper

Phones4U, a British mobile phone retailer is mulling to be put up forsale by its U.S. private equity owner Providence Equity, as reported bythe Sunday Times. Sources revealed that the discussions are at an earlystage. Analysts estimate the business, which has 476 stores, to be worthbetween 700 million pounds ($1.1 billion) and 800 million, the papersaid. Both the companies were immediately unavailable for anycomments.

Omega chairman invests in insurance underwriter

Omega Insurance Holdings chairman John Coldman is planning toinvest nearly £1m in the Bermuda-based insurance underwriter,

together with its Chief executive Richard Pexton.

The share price has been consistently declining for nearly two years.Coldman bought 1.125m shares as his first shares at 88p a share, whilePexton bought 225,000 shares at 88p a share – a total investment of £198,000. That takes his stake to 232,997 shares.

BAE plans to sell U.S. aero assets

BAE Systems plans to sell as much as $2 billion worth of U.S. aircraftand vehicle controls, it may help the company focus on defense servicesand raise cash for potential purchases. Wells Fargo. and JPMorganChase. has been hired by the company to find out option for the so-called platform solutions business, including a possible sale, the

company. The unit include hybrid propulsion systems for buses andtrucks as well as flight controls used by Airbus and Boeing.

Bank stocks rise on Basel norms

Bank stocks soared in Europe and Asia as regulators gave firms moretime than analysts expected to obey with firmer capital requirements meant for preventing future financial crises. Regulators reached aconsensus that more than doubles capital requirements for the world’sbanks, while giving them as long as eight years to comply in full at ameeting held in Basel, Switzerland. U.S., U.K. and Switzerland pushed fora maximum of five years, while Germany had sought to give firms adecade to make the transition. 

BDO warns U.K. on double dip

The research by BDO, the accountants and business advisers, said long-termeconomic prospects are not showing signs of improvement. BDO's optimism

index, which covers more than 11,000 respondents from companies employingabout 5 million people dropped to 93.1 in August from 95.5 in July, reachinglowest since the recession. The index reflects how businesses expect trading todevelop two quarters ahead.

BDO Partner Peter Hemington said: "What's so disappointing is that businessesseem to be convincing themselves that things are going to get really tough in2011 and are deferring new hires and investment decisions as a result. Much of this comes from the hype around the government's spending cuts."

Astra cancer drug on trial

AstraZeneca has agreed British charity deal to take an experimental cancer druginto early clinical trials and then the company can decide whether to proceedafter trial. The experimental compound, called AZD-3965, is one of a new class of cancer metabolism drugs and targets the monocarboxylate transporter 1(MCT-1) which is essential in cell metabolism.

This drug will be the sixth anti-cancer drug in the charity's clinical developmentpartnerships project -- a deal allowing drug companies to preserve the rights toa potential treatment while the charity carries out early tests.

August inflation to fall: Survey

August U.K. inflation possibly fall to 3% limit for first time in six months,economists say. Consumer prices which is expected to be published by theOffice for National Statistics in London on Sept. 14 is expected to increase 3percent from a year earlier, compared to 3.1 percent in July.

The Bank of England maintained emergency stimulus for the economy thisweek as the biggest public-spending squeeze since World War II threatened toundermine the recovery.

ECONOMY NEWS

COMPANY NEWS (contd…) 

Nokia's mobile unit chief resigns

Anssi Vanjoki, the head of Nokia's mobilesolutions unit is resigning, while outsider Stephen Elop will be replacing him as chief 

executive of the world's biggest cellphonemaker. Vanjoki had joined Nokia in 1991and has to serve six-month notice periodpresently before resigning. Nokia has alsostated its intention on hiring Elop, a Cana-dian Microsoft executive with Silicon Valley credentials, to replace em-battled CEO Olli-Pekka Kallasvuo and renew its drive to compete withApple. Nokia's chairman, Jorma Ollila also showed his intention tostep down after helping with the CEO management change.

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Unions protest as Coalition says overcuts needed

Britain's coalition government defended anyintention to cut the welfare bill as trade unionleaders asked the public to join millions of workers in a campaign to halt Prime MinisterDavid Cameron’s budget cuts which is said tobe the biggest squeeze in spending sinceWorld War II. Government cautioned sayingthat any if spending are not reduced it wouldintensely damage the economy as it recoversfrom the worst recession since World War Two.But the labour party opposed saying that thepace and scale of the recommended cuts couldseverely hamper economic recovery.

Rich states to pay Africa on resources deals

A panel set up by former British Prime Minister Tony Blair announcedthat prosperous countries should pay African governments to getadvice on negotiating the best contracts for exploiting their naturalresources

In order to boost Africa to adapt to climate change, the Commissionfor Africa, which includes serving and former African leaders andfinancial figures among its 17 members, also called on donorgovernments to provide an extra $10 billion-$20 billion a year. It addedsaying that despite average annual growth rates for Africa of six percent

for much of the past decade, most Africans had yet to feel the benefitsof economic growth.

REGULATORY NEWS

ECONOMIC INDICATOR WATCH

U.K. CPI Monthly (Aug)Forecast 0.3%; Prior -0.2%

Consumer Price Index performance for the month of August will bereleased at 1400 (LST), the CPI fell by 0.2 per cent between June and

July this year compared with no change over the same period a yearago. These 1-month changes are both within the normal range for aJune to July period; since 1996, the monthly movement between thesetwo months has varied between a fall of 0.8 percent and an increase of 0.1 per cent.

Source: Office for National Statistics

U.K. CPI Yearly (Aug)Forecast 2.9%; Prior 3.10%

CPI annual inflation stands at 3.1 per cent, down from 3.2 per cent inJune. The change in the CPI 12-month rate is calculated by comparingthe price changes between the latest two months and the same two

months a year ago.

The 1-month movement 0.2 percentage points lower this year and thisled to a decrease of 0.1 percentage points (the 0.1 percentage pointdifference is due to rounding) in the CPI 12-month rate, from 3.2 percent in June to 3.1 per cent in July. Yearly CPI Core Inflation in July,which excludes the cost of food, tobacco, alcohol and energy prices,slowed to 2.6% from 3.1% in June. Economists forecasted a reading of 3%, whereas monthly core CPI inflation fell to 0.4% in July.

U.K. Retail Price Index Monthly (Aug)Forecast 0.3%; Prior -0.2%

The RPI 12-month rate between June and July has therefore decreased

by 0.2 percentage points compared with a fall in the CPI 12-month rateof 0.1 percentage points.

Source: Office for National Statistics

U.K. Retail Price Index Yearly (Aug)Forecast 4.6%; Prior 4.8%

In the year to July, the all items RPI rose by 4.8 per cent, down from 5.0per cent in June. The slightly larger decrease in the RPI 12-month rate ismainly due to insurance. Insurance has a far higher weight in the RPIthan the CPI so the downward effect from this component had a muchlarger impact on the RPI. The different methods used to measure theprice of new cars in the CPI and RPI also resulted in a larger downward

contribution to the RPI (compared with the CPI) from the purchase of vehicles.

DCLG U.K. House Price Index (July)

Department of Communities and Local Government will release theperformance of the U.K. House Price Index for the month of July, 2010at 0930 (LST)

U.K. house prices were 9.9 per cent higher than in June 2009 and wereunchanged from May 2010 (seasonally adjusted). The mix-adjustedaverage house price in the U.K. stood at £210,775 in June (notseasonally adjusted).

UK house prices rose by 0.8 per cent in the quarter to June 2010compared to an increase of 2.8 per cent in the March quarter(seasonally adjusted).

Ed Miliband could replace David in labour race: Poll

David Miliband, Former foreign secretary slips behind in Labour race byhis younger brother Ed in the leadership race, a poll indicated.

David Miliband, seen as the preferred candidate of former primeminister Tony Blair, held the most first-choice support, with 36 percentof the vote, four points ahead of his brother on 32,but under the party'selection rules the winning candidate must receive at least 50 percent of the vote. The YouGov survey of 1,700 Labour and union members saidEd Miliband could replace his elder brother as the winner once lower-ranking candidates were eliminated and their supporters' second choicevotes were redistributed. The voting is scheduled to get complete onSeptember 22, while winner declaration on September 25.

ECONOMY NEWS (contd…) 

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