By Richard Barley
LONDON, May 16 (Reuters) - European credit spreads tightened on Friday, buoyed by European equities, although they pared some of the move after U.S. consumer sentiment data from the University of Michigan came in weaker than expected.
The benchmark iTraxx indexes have been moving tighter throughout the week, reversing the widening seen last week, as the focus has moved more to new corporate bond sales that have been broadly well received, bringing support to the market.
By 1515 GMT, the Markit iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was at 413 basis points, according to data from Markit, 7 basis points tighter versus late on Thursday.
The investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 68 basis points, 2 basis points tighter.
The indexes had earlier been indicated as low as 404 basis points and 65.5 basis points, respectively, but weakened late in the session after U.S. consumer confidence tumbled to its lowest in 28 years this month. [ID:nN16404511]
Traders said there was little activity in the market on Friday, with investors perhaps focused on digesting the heavy flow of supply this week, including sizeable deals from BMW <BMWG.DE>, France Telecom <FTE.PA> and Daimler <DAIGn.DE>.
"The new issue window, largely shut in Q1, exploded in April and May as investors sensed stability was returning to the markets," strategists at BNP Paribas said in a note to clients. "Stable market conditions will keep the primary pipeline busy, given the large backlog of financing required due to M&A activity."
"The good news is that investment-grade markets are still open."
BA, ICELANDIC BANK CDS RALLY
Among single names, CDS on British Airways <BAY.L> fell 20 basis points to 301 basis points after it released results that pushed its shares up nearly 4.5 percent.
BA said profits rose 45 percent, allowing it to pay its first dividend since 2001, but warned that the year could be turbulent with fuel costs set to rise 1 billion pounds.
The cost of insuring Icelandic banks' debt against default fell sharply on Friday after the Swedish, Danish and Norwegian central banks agreed a swap facility with Iceland.
Five-year credit default swaps on the banks fell by some 40-50 basis points, with Kaupthing <KAUP.IC> indicated around 425 basis points, Glitnir <GLB.IC> around 380 basis points and Landsbanki <LAIS.IC> around 220 basis points.
The Swedish central bank said the facility was aimed at supporting the Icelandic central bank in its task of safeguarding economic and financial stability.
In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 111.8 basis points more than similarly dated government bonds, 0.6 basis points more on the day. (Reporting by Richard Barley; editing by Sue Thomas)
((richard.barley@thomsonreuters.com; +44 20 7542 7770; Reuters Messaging rm://richard.barley.reuters.com@reuters.net))
* Reuters clients can view related news by double clicking on:
[EUB] All Eurobond news
[DBT] Debt reports
[EUB-ISU] New debt issues
[IGD] Investment-grade bonds
[HYD] High-yield bonds
[ABS] Asset-backed securities
[CDV] Credit derivatives news
[AAA] Credit ratings news
[TOP/DBT] Top fixed income news
[TOP/CREDIT] Top credit news
Other market reports:
[GVD/EUR] Euro government debt report
[US/] U.S. Treasury market report
[USC/] U.S. corporate bond report
[.EU] European stock market report
[.L] UK stock market report
[.N] Wall Street report
Guides:
For prices or rates, double click on: <EUROBONDS>
For credit ratings, double click on: <RRS0001>
For credit derivatives, double click on <CDSINDEX>
For top corporate bond issuers, double click on <0#TOPISSUER>
Keywords: MARKETS BONDS EUROCORP
Keywords: MARKETS BONDS EUROCORP = 2
ROME, May 16 (Reuters) - Italy's government could name a new chief for Alitalia <AZPIa.MI> next week to replace former chairman Maurizio Prato who resigned last month after the airline's sale to Air France-KLM collapsed, union sources said on Friday.
Prato's replacement will hold both the chairman and the chief executive titles at the state-controlled airline, which is close to bankruptcy and has been unable to find a buyer despite being on the block for more than a year.
Aristide Police was appointed interim chairman after Prato's departure. Italian newspapers have speculated the chief executive post would be taken by businessman Mario Resca, who helped oversee food group Cirio after its collapse. (Reporting by Alberto Sisto; Editing by David Holmes) ((deepa.babington@reuters.com; + 39 06 8522 4369; Reuters Messaging: deepa.babington.reuters.com@reuters.net))
Keywords: ALITALIA/CEO
ATHENS, May 16 (Reuters) - Greece must change a national law used to block a takeover of domestic telecoms group OTE <OTEr.AT> or face legal action at the European Court, a European Union Commissioner said on Friday.
The European Commission 10 days ago gave Greece two months to change the controversial law. It stipulates anyone wanting to own more than 20 percent in a strategic company must obtain authorisation from the government. Strategically important decisions in such companies need finance ministry approval.
The recently adopted law was used to stop buyout company Marfin Investment Group from building a controlling stake in OTE. Greece preferred to have a major European telecoms company as a partner for OTE, and a deal was struck earlier this week with Deutsche Telekom <DTEGn.DE>.
"This in my view contravenes a basic (EU) treaty," EU Internal Market Commissioner Charlie McCreevy told reporters in Athens.
"They (Greece) have two months to reply to the formal notice. Hopefully in these two months we can find some accommodation and if we are not satisfied we will refer this to the European Court."
Allowing capital to move unrestricted in the 27-nation European Union is one of the core "freedoms" of the EU founding treaty.
McCreevy has won several legal actions as part of his crackdown on "golden shares" and other hurdles to the takeover of some companies.
He is also battling Germany to make sufficient changes to a law that shields domestic carmaker Volkswagen <VOWG.DE> from takeovers. (Writing by Karolos Grohmann, Editing by Mark Trevelyan) ((karolos.grohmann@reuters.com; +30 210 3311813; RM: karolos.grohmann.reuters.com@reuters.net))
Keywords: GREECE EU/
(For more Reuters DEALTALKS, click on [DEALTALK/])
By Tom Miles
HONG KONG, May 16 (Reuters) - Since Chief Executive Marius Kloppers said last week he had no doubt Chinese money would one day show up on BHP Billiton's share register, investors have piled in, expecting Beijing's cash sooner rather than later.
There is, however, no firm evidence of Chinese buying and Chinese sources say top officials, who would need to approve such a move, are tied up with the emergency response to Monday's devastating earthquake in Sichuan province.
But traders have followed Kloppers' "when, not if" script and lapped up a rumour on Wednesday and a thinly-sourced media report on Friday, driving up shares in the world's top miner to a record. BHP stock has risen 49 percent in eight weeks.
Many analysts say they are surprised China has not bought into BHP <BHP.AX> <BLT.L> already, since it is a powerhouse producer of the commodities, such as iron ore, coal and oil, that are desperately needed for China's rapid economic evolution.
"By buying BHP and Rio shares or investing in joint ventures, particularly in iron ore, Chinese steel producers and the Chinese government could hedge against rising commodity prices," CLSA analyst Matthew Whittall said in a note to clients.
And since BHP is trying to take over its main rival, Rio Tinto <RIO.L><RIO.AX>, it is logical for China to target both companies to hedge against an eventual merger.
"If you wanted to be sure of a seat at the table in the global mining game, it would make sense to have 10 percent of the world's largest miner," said one senior investment banker involved in the sector, who declined to be named.
Chinese aluminium giant Chinalco already bought 9.3 percent of Rio earlier this year in collaboration with U.S. partner Alcoa Inc <AA.N>, a stunning move that appeared to throw a $14 billion banana skin in the path of BHP's takeover bid.
Chinalco was widely seen to be trying to stop two of the big three iron ore suppliers joining forces to pump up prices for China's steel sector, the world's biggest.
The threat to BHP's takeover plan was sharpened by Chinalco and Alcoa reserving the right to make a counterbid for Rio, but that threat has not materialised and the idea has lost traction.
Chinese investment in BHP would signal that Beijing is more at ease with the BHP-Rio deal going through, since it would put China on both sides of the equation and inflate BHP's share price, the currency of the all-stock takeover offer.
Since BHP's bid for Rio, both firms have taken out the megaphones to try to win over shareholders, most of whom hold stakes in both companies. Rio argues that BHP undervalues its growth, but even CEO Tom Albanese has conceded that the potential synergies are compelling, at the right price.
And he and Kloppers appeared this week at the same Florida conference, setting tongues wagging once again.
If China wanted to block the deal, it might be expected to quash all talk of Chinese investing in BHP, since that speculation is buoying BHP's stock, improving the bid terms.
AUSSIE LIMBO
Although the Chinese have the economic firepower to buy all of Rio, they are uncomfortable with owning non-Chinese assets and are far happier with partnerships and agreements, a source familiar with the matter told Reuters recently.
He said China's investment in Rio was motivated by a desire to get a seat at the table. China would be keen to buy certain iron ore assets that a combined BHP-Rio would have to dispose of and wanted to push for a 20-year deal on iron ore prices.
But if China does want to get into BHP, it might find it a much tougher task than the raid on Rio, since that purchase prompted both London and Sydney to tighten their foreign investment rules, putting a bureaucratic hurdle in the way of any Chinese investment in BHP shares.
Investment bankers say there is a logjam of more than a dozen potential Chinese M&A deals in Australian commodities, including the entry of Chinese coal giant Shenhua Group into Australia. But those deals are in limbo while the two governments thrash out an understanding about China buying up Australian assets.
Chinalco avoided regulatory entanglements in Australia by restricting its buying to Rio's London-listed shares. But BHP has a much smaller London float, forcing any major buyer towards the Sydney market.
And a Chinese buyer would also face the conundrum of buying shares without tipping off investors, who anticipate another Rio-style windfall if, or when, China snaps up BHP shares.
"I would buy on the market as much as possible," said the senior investment banker, on how he would advise China.
"Talk to hedge funds and large option holders. As soon as you do anything quick the market's going to jump."
(For more on BHP/Rio, click [ID:nSYD39050] (Additional reporting by Eleanor Wason in LONDON and Lucy Hornby in BEIJING, Editing by Ian Geoghegan) ((tom.miles@reuters.com; RM: tom.miles.reuters.com@reuters.net; +852 2843 6532, fax +852 2845 0636))
Keywords: DEALTALK/BHP
LONDON, May 16 (Reuters) - European credit spreads tightened on Friday, lifted by a rally in share markets, as easing concerns about corporate earnings outweighed Thursday's negative economic data.
By 0924 GMT, the Markit iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was at 407 basis points, according to data from Markit, 13 basis points tigher versus late on Thursday.
The investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 66.75 basis points, 3.25 basis points tighter.
European shares rose, with gains in pharmaceutical and oil shares, following a rally in the United States that pushed the S&P 500 index <.SPX> to its highest close since the first week of January.
"The underlying picture, away from financials, hasn't deteriorated as badly as people's fears," said the head of credit research at a bank.
Tech shares accounted for much of the market gain, and retailers also gave a boost to the U.S. market after JC Penney Co. Inc. <JCP.N> said its earnings for the current quarter could exceed analysts' forecasts.
"That tells you the U.S. consumer is not dead," the analyst said. Even so, he expected the financial crisis to inflict more damage on corporate earnings in the U.S. and Europe later this year.
The VIX index <.VIX>, or 'fear gauge', which measures projected volatility based on near-term option prices on the S&P 500 and is often seen as a leading indicator for credit, fell to a 7-month low.
On the economic data front, U.S. industrial production and capacity utilitsation came in weaker than expected for April. A New York Federal Reserve report also showed manufacturing weak, and initial jobless claims in the latest week rose slightly more than expected.
"With April growth starting out on a very weak note and inflationary concerns increasing, the U.S. seems to be entering a stagflationary phase, albeit of a modest kind," analysts at BNP Paribas wrote in a note to investors.
In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 111.0 basis points more than similarly dated government bonds, 0.18 basis points less on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz <EU2YT=RR> was 3.988 percent, 1.6 basis points less on the day. The 10-year Bund <EU10YT=RR> yielded 4.203 percent, 0.4 basis points less.
The 10-year euro swap rate <EURAB6L10Y=> was 4.611 percent. (Editing by Louise Ireland) ((jane.baird@reuters.com; +44 207 542 2471; Reuters Messaging: jane.baird.reuters.com@reuters.net))
* Reuters clients can view related news by double clicking on:
[EUB] All Eurobond news
[DBT] Debt reports
[EUB-ISU] New debt issues
[IGD] Investment-grade bonds
[HYD] High-yield bonds
[ABS] Asset-backed securities
[CDV] Credit derivatives news
[AAA] Credit ratings news
[TOP/DBT] Top fixed income news
[TOP/CREDIT] Top credit news
Other market reports:
[GVD/EUR] Euro government debt report
[US/] U.S. Treasury market report
[USC/] U.S. corporate bond report
[.EU] European stock market report
[.L] UK stock market report
[.N] Wall Street report
Guides:
For prices or rates, double click on: <EUROBONDS>
For credit ratings, double click on: <RRS0001>
For credit derivatives, double click on <CDSINDEX>
For top corporate bond issuers, double click on <0#TOPISSUER>
Keywords: MARKETS BONDS EUROCORP
Next: INTERVIEW-Turk finmin sees 08 budget gap few bln below target