2:00PM European markets closed higher on Italian banking mergers talk and cement company earnings and report on German GDP.
Markets in the region managed to climb higher as Swiss cement company Holcim reported better than expected eaernings. German Xetra index gained 0.67%, CAC-40 index in Paris gained 0.59% and SMH index in Switzerland gained 0.25%.

Italian bank merger news talk dominated the trading news. Sanpaolo IMI and Banca intensa are in talks to explore possible ‘merger of equals’ for $83 billion. The merger will create second largest bank in Italy after Unicredit. French bank Credit Agricole owns 18% of Banca Intensa and Spanish bank Santander owns 8.7% of Sanpaolo IMI. The merger of banks is Italy is expected accelerate as Italian banking industry is highyl fragmented.

Banca Intensa gained 7.5% and Saopaolo advacned 6% at the close. Capitalia and Midobaca in Italy also gained 3% and 5% respectively.

Germay’s business owners and managers reported a decline in confidence in August as reported in a survey conducted by economic institute Ifo. The indicator for the outlook for the business climate fell to 105.0 in August from 105.6 in July. At the same time Germany reported that its economy expanded in the second quarter at 0.9%. The latest economic expansion was driven by 4.6% rise in investment in construction and 2.5% gain in machinery segment. The consumer spending fell 0.4%

Holcim, swiss cement maker, fell 1.1% to SFr 98.50 in Swiss trading after reporting better-than expected earnings. The stock had run up in anticipation of better earnings. The company reported 38% rise in sales and 30% gain in earnings in the first-half earnings on the back of acqusition and price hike. The company also decided to sell its 85% stake in South African cement company.

Ericsson (ERICY: chart) has agreed to extend its current contract with Bharti Airtel, largest mobile telecom operator in India with 20 million subscribers for three years. The contract to manage network is valued at $1 billion. Bharti also has similar arrangement with IBM to manage hardware related issues. The Indian cell phone subscriber base has been growing at 40% rate in the last three years and is now over 100 million strong.

1:15PM Retail stocks decline.
Retail stocks declined after economic reports and earnings revision from Chicos and coldwater creek. While Coldwater Creek (CWTR: chart) raied its earnings guidance Chico’s reported earnings growth but its forecast for the same store sales and lowered earnings for the full year 2006 and 2007 hurt the stocks.

Chico’s (CHS: chart) is trading down $5.95 or 25% to $18.16. The stock has declined from its peak of $49.40 in February of this year. The steady decline in stock is the result of slow down in same-store sales and earnings revision.

The company reported earings for the second quarter of 30 cents vs. 27 cents a year ago, including 2 cents of options expenses in the current quarter. The sales in the quarter rose 18% to $405 million and earnings rose to $54 from $49 million.

The company also said in the press release that after nine years of double digit same-store sales growth at the flagship Chico’s stores the store chain is facing a slow down and may have a negative comp sales. The company guided flat or a low single digit same-store sales growth in the third and fourth quarter of this year. For the full-year the operating margin company expects to decline from 17% and 19% to 14% and 15%.

The company has now a portfoli of chains including flagship Chico’s, sportwear casual chain Fitigue, intimate apparel chain of stores Soma and White House/Black Market selling casual black, white and gray apparel. The recently acquired Fitigue failed to deliver expected sales grwoth in the quarter, White House/Black Market sales rose 19% but flag ship chain Chico’s sales grew only at 3%, slowest in nine years.

The company blamed the same-store sales decline to lack of merchandise availabililty, failure of the recent promotion to pull new customers in the stores and slow traffic at stores.

11:30AM Market averages trade in a lackluster fashion.
Market averages have remained subdued after the release of three economic repots. New home sales, durable goods order and weekly jobless claims. New home sales dropped 4.3% from the revised estimate sales in June 1.12 million and 21.6% from a year ago. The median home sales price in July 2006 was $230,000 and average sales price was $293,000. Median home price in June was $233,800 and in July 2005 was $229,200. Inventory of new homes rose to a 6.5 months supply at the end of July 2006.

Durable goods order for July moth dropped 2.4% but orders excluding transportation oders gained 0.5% in the month. The total oders in the month droped $5.3 billion to $212 billion. The orders for the transportation equipment dropped 9.6% including the 10% drop in aircraft orders and 7% drop in automobile orders.

Unemployment claims at the end of the last week declined 1,000 to 313,000.

Toro Company (TTC: chart) reported third quarter earnings of 91 cents compared to 74 cents a year ago on revenue rise of 2%. The company reported earnings of $40.3 million on revenue of $477.9 million. The company also said that the professional segment sales rose 5.7% and residential sales dropped 2.2%. Toro cut its sales guidance for the year 2006 to 3% to 5% from 8% and raised its earnings grwoth target from 14% to between 15% and 17% for the year.

10:30AM Sensex jumps on bonds and likely fuel price stability.
The Sensex on BSE soared 125.30 points, or 1.1%, to close at 11,531.95. This is the highest closing since 17 May 2006. The turnover on BSE amounted to Rs 3,146 crore, higher than Wednesday’s Rs 2,998 crore. The market-breadth was initially negative but turned positive in late trading, as 1,349 shares advanced on BSE, 1,113 declined and 81 shares were unchanged.

Reliance Industries led the advancers. The stock surged in late trading and triggered the turnaround in the market from negative to positive. Most blue-chips advanced towards the second half of trading, in contrast to an early fall. Reliance Industries surged 5.3%, to Rs 1,118.

Metal shares bounced back in the latter part of trading. Sterlite Industries gained 4% to Rs 424.95, Hindalco advanced 4% to Rs 168.50, Hindustan Zinc rose 3% to Rs 594, and Tata Steel jumped 2.4% to Rs 518.55. Metal shares had retreated in early trade in the wake of commodity price drop in European trading.

Select cement stocks gained on hopes of a rise in demand as the monsoon season is about to end. Gujarat Ambuja Cements gained 3.4% to Rs 113.80, ACC rose 2% to Rs 912, Grasim was up 1.2% to Rs 2,220, India Cements advanced 3% to Rs 191.40, JK Lakshmi Cement jumped 3% to Rs 142.75, and Madras Cement added 3% to Rs 2,870.