London shares outlook Marginal gains after Dow surge on rate cut hopes

LONDON (AFX) - Leading shares are expected to post marginal gains in early trading, excited by the surge in the DJIA overnight as cautious comment on the health of the economy in the U.S. Beige Book reignited talk of further interest rate cuts in the U.S., dealers said. But investors are unlikely to draw much excitement from yesterday's UK Budget, with the overall impact seen as "peripheral", and just a few selected sectors seen benefiting from Gordon Brown's pronouncements. Early indications from the IG Index suggest the FTSE 100 index will open around the 6,018-6,026 level, well above yesterday's 6,001.8 close -- with the move above the 6,000 level in recent days seen as a major positive for short-term sentiment. Overnight, the DJIA ended up 138.38 points at 10,729.6, while the Nasdaq composite added 19.49 points to 2,223.92. In Asia, the Nikkei 225 index closed at 12,650.56 points, down 73.33 points, with the Hang Seng at 14,088.97, down 88.39 points at the midday session. Hopes of further early easing in U.S. monetary policy in the wake of yesterday's Beige Book should help to underpin early sentiment here. But any early enthusiasm for the market will inevitably be tempered by yet more profits warnings from the U.S. overnight, with internet giant Yahoo warning on full year prospects and announcing plans to appoint a new ceo. Chip makers could also be in for another tough session after U.S. chip maker Cree warned on its fourth quarter results overnight, triggering a 20 pct slide in its share price in after-hours trading. On the domestic front, CSFB equity strategist Richard Kersley said he thought the Budget was "slightly better for equities than bonds" with a slightly looser fiscal stance indicated, although overall he concluded that the Chancellor of the Exchequer's words were "at the margin in terms of influence". Kersley pointed out that the lack of change to the UK Government's inflation target at 2.5 pct could "take the edge" off the gilts market, and will do nothing to change the Bank of England Monetary Policy Committee's mind on interest rates. But the real key for domestic sentiment will be news from the Bank of England's Monetary Policy Committee meeting on UK interest rates, which is due at midday. Most commentators still expect monetary policy to be left unchanged as the run-in to a UK General Election -- still widely expected in early May -- effectively keeps the BoE's hands tied. Among the few sectors expected to be lifted by measures in the Budget, bookmakers such as Stanley Leisure and Hilton Group-owned Ladbrokes should be supported by the Chancellor's plans to abolish betting duty with effect from Jan 1 2001. In the wake of the Budget, Ladbrokes -- the UK's biggest bookmaker -- told AFX News that it plans to repatriate its business based in the tax haven of Gibraltar after Gordon Brown's decision to scrap the pct betting duty However, dealers pointed out that the change was no real surprise, with the betting industry having lobbied for such a move for many years, with the move balanced by plans to tax bookmakers gross profits at 15 pct, a move which the firms have promised not to pass on to punters. Waste management firms such as Waste Recycling could be upset by the Chancellor's plans to raise landfill tax to 12 stg per tonne from a current level of 11 stg -- although again the move was widely xpected. Elsewhere, tobacco firms like blue chip Imperial Tobacco could be relieved by the lack of any real rise in cigarette taxes in the Budget, although the cost of a packet of cigarettes was still ncreased by 6 pence. Drinks firms such as blue chip Diageo should be helped by the Chancellor's decision to freeze duty on spirits, wine, and beer -- although once again this was widely anticipated, with the same card played in previous Budgets. Second line brewer Scottish & Newcastle should also celebrate news of its return to the FTSE 100 index following confirmation of the blue chip reshuffle after the market close today. The brewer and IT services group Sema are both set to return to the FTSE 100 index late this month as part of the latest quarterly reshuffle -- although Sema's inclusion will be short-lived with the group in the midst of being taken over by Schlumberger of the U.S. Confirmation of FTSE 100 index demotions should also have an impact on Exel and Autonomy, although traditionally should news is normally accompanied by a share price rally. Among the FTSE 250 changes, a big batch of technology issues are set to be demoted from second line status, with Scoot.com, Orchestream, and Imagination some of the notable casualties. Among early news, British Airways is expected to be active afer its 120 pence a share cash offer for British Regional Airlines Group, which values the airline at 78 mln stg. GKN is seen active after in-line results, though there may be some disappointment at the absence of any further details on the Brambles merger. Enterprise Oil is seen higher after robust full year results, with sentiment further boosted by talk that the oil independent is in prime position on the reserve list to replace Sema in the FTSE 100 index when it is subsumed by Schlumberger. Elsewhere, results news will drive Rexam, Arriva, Travis Perkins, Cattles and Cordiant Communications. Music Unsigned could see some hefty falls at the onset after it effectively announced plans to turn itself into a shell company after hours last night.

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