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October 20, 2010    

BAE Systems declines on UK budget cuts

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by Elaine Frei
BAE Systems declines on UK budget cuts

European equities markets made gains Wednesday as miners were higher on a weaker US dollar, but advances were limited by the announcement of budget cuts in the UK.

The FTSE 100 was up 0.44 percent to 5,728.93 in London, while the FTSE 250 added 0.05 percent to 10,831.86.

Defense and aerospace contractor BAE Systems (LSE: BA), which is currently trading ex-dividend, dropped 3.85 percent for the biggest decline on the 100 after Chancellor of the Exchequer George Osborne said that the UK’s defense budget will be cut by 8 percent, and after yesterday’s announcement from Prime Minister David Cameron said the government is cancelling an order for BAE’s Nimrod reconnaissance aircraft.

Not all the budget news was bad for companies, however, as bus transport groups saw gains after bus subsidies were cut by just 20 percent in the UK, after some thought they would be scrapped completely.

Bus transport groups were the top four gainers on the 250, led by Stagecoach Group (LSE: SGC), which added 9.39 percent while Go-Ahead Group (LSE: GOG) was up 7.73 percent, FirstGroup (LSE: FGP) gained 6.41 percent and National Express (LSE: NEX) was 4.66 percent higher.

Software group Autonomy Corporation (LSE: AU) added 4.22 percent to lead gains on the 100, while miners were led mostly higher by Xstrata (LSE: XTA), which gained 3.4 percent, and medical devices manufacturer Smith & Nephew (LSE: SN) was up 3.18 percent after US rival Stryker Corp (NYSE: SYK) issued an optimistic outlook.

The biggest drop on the 250 came from Hansen Transmissions International (LSE: HSN), which dropped 14.51 percent after issuing a revenues warning, while Stobart Group Ltd (LSE: STOB) was down 8.63 percent after the logistics company cut its forecast for full-year profits.

The FTSE Eurofirst 300 was up 0.31 percent to 1,086.29 while the IBEX added just 0.01 percent to 10,896.9, the Dax was 0.52 percent higher to 6,524.55 and the CAC-40 gained 0.55 percent to 3,828.15

Most markets in the Asia-Pacific region were lower a day after China raised interest rates in an attempt to discourage inflation there.

The Shanghai composite was up slightly at the end of trade, however, after a volatile day, adding 0.07 percent to 3,003.95, but Hong-Kong listed Chinese banks were lower on the session, with Industrial & Commercial Bank of China (SEHK: 1398) down 1.1 percent while Bank of China Ltd (SEHK: 3988) dropped 2 percent.

Also seeing gains, the Kospi added 0.71 percent to 1,870.44 in South Korea and Taiwan’s Taiex gained 0.97 percent to 8,124.62.

The Nikkei 225 was 1.65 percent lower to 9,381.6 in Tokyo, while the Topix index fell 1.2 percent to 823.69 and the Mothers market dropped 0.16 percent to 345.39.

Traders were down as commodities prices fell on concerns that China’s move on rates could hurt demand for raw materials.

Mitsubishi Corp (TYO: 8058) was 2.4 percent lower while Mitsui & Co (TYO: 8031) was down 2.7 percent.

Oil companies also saw declines after yesterday’s drop in prices in New York trade, with Inpex (TYO: 1605) falling 3.4 percent.

A stronger yen sent exporters into declines as well, with heavy machinery maker Komatsu (TYO: 6301) down 1.3 percent while carmaker Toyota Motor (TYO: 7203) as also 1.3 percent lower and camera and copier maker Canon (TYO: 7751) dropped 2 percent.

Other decliners in the region included the Straits Times Index, which was 0.41 percent lower to 3,179.15 in Singapore, while India’s Sensex fell 0.56 percent to 19,872.15.

The S&P/ASX200 was down 0.66 percent to 4,624.9 in Australia, while the Sydney Ordinaries dropped 0.69 percent to 4,694.5, while in Hong Kong the Hang Seng was 0.87 percent lower to 23,556.5.

New York markets were higher on strong profits reports and optimistic forecasts from the airline sector and on gains in commodities prices after the US dollar weakened.

The Dow Jones Industrial Average was up 1.39 percent to 11,131.05 in midday trade, while the S&P 500 had added 1.33 percent to 1,181.43 and the Nasdaq Composite was 1.16 percent to 2,465.31.

Crude oil prices were higher, with West Texas Intermediate crude nearly $2 hither to $81.45 per barrel, while gold led metals prices higher, gaining almost $10 in midday trade.

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