US Markets - US stocks tested record territory this week, only to falter as the prospect of Federal Reserve interest rate cuts this year dimmed.

Blue chips and the S&P 500 established their first weekly decline since March, while technology stocks accrued a third week of losses.

The S&P rose 0.55% to close at 1,515.73 on Friday, a fall of 0.5% this week.

It traded above its March 2000 record close of 1,527.46 on the first four days of the week but could not maintain the bullish momentum.

Higher bond yields hurt utility stocks, down 4.3% this week but still up 11% this year.

Technology stocks were also laggards as the semiconductor sector closed lower for the week.

On Friday, the Nasdaq Composite rose 0.75% to 2,557.19, for a fall of 0.05% this week. The Dow Jones Industrial Average closed 0.5% higher at 13,507.28 on Friday, having set an all-time intra-day peak of 13,624.55 on Thursday. For the week, the Dow was down 0.4%, having risen in each of the previous seven weeks.

Concern that the S&P’s rally since late March had come too far, too fast was apparent in the price action underpinning stocks this week. The June S&P futures contract set its closing high for the week of 1,527.90 on Monday. When it reached an intra-day peak of 1,535.70 on Wednesday, heavy selling of the contract emerged, said traders.

The catalyst for a sharp decline in stocks on Thursday was the realisation that a rate cut from the Fed this year was unlikely, something stock investors had hoped would offset the forecast slowdown in corporate profit this year.

Stocks are still floating on a surfeit of deals. So far this month, $81.8bn in US deals have been announced, a record volume.

In transactions of note this week, Coca-Cola bought Glaceau, the privately held vitamin water maker, for $4.2bn. Coke rose 1.3% to $51.89.

Nasdaq Stock Market agreed to buy OMX, the Nordic stock exchange, for $3.7bn. Nasdaq shares closed 3.35% lower at $32.84.

MGM rose 22.2% to $76.76 this week. The company hired UBS as a financial adviser to weigh up a bid for two of its properties, the Bellagio Hotel and City­Center, from Tracinda, the investment vehicle of Kirk Kerkorian, who in turn holds a 56% stake in MGM.

Advanced Medical Optics said it was interested in buying Bausch & Lomb which agreed to a $3.67bn buy-out from Warburg Pincus last week. The eye product maker’s shares rose 5.1% to $70.49. AMO fell 5.5% to $40.20. Analysts at Citigroup said: “A Bausch deal would further unsettle a company that has been integrating constantly over the past several years.”

Crescent Real Estate Equities rose 7.8% to $22.36 after it agreed to be acquired for about $2.3bn by the real estate unit of Morgan Stanley.

Shares in Archstone-Smith surged 7.4% to $55.23 on Friday after UBS said the real estate investment trust could be a takeover target.

A possible battle for control of Alcan emerged this week. The Canadian aluminium producer’s board said shareholders should reject an unsolicited $27.6bn bid from Alcoa that would create an aluminium giant. In turn Alcoa, up 2.9% at $40.90 this week, reaffirmed its intention to buy Alcan, up 4.8% at $85.

There was a merger in the shoe sector, as Payless ShoeSource purchased Stride Rite for around $800m. Shares in Stride Rite soared 36% to $20.17 and Payless gained 6% to $34.23.

Fremont General jumped 62.3% this week to $11.65 after selling its commercial real estate business to IStar for $1.9bn. Alltel rose 5.2% to $68.60 after TPG Capital and GS Capital Partners, a subsidiary of Goldman Sachs, made a $27.5bn, or $71.50 a share, bid for the wireless telecoms company. Hologic fell 9.3% to $52.26, after the medical equipment maker said it would buy Cytyc for $6.2bn, boosting the diagnostic device company by 19.8% to $41.99 this week.

Amazon rose 8.3% to $68.55 this week and set a seven-year high of $73.31 as the online retailer expanded into audio books. So far this year, Amazon is up 74% and has risen sharply in the past month since it beat first-quarter earnings estimates and upset many investors who had heavily short sold the stock. A number of stocks reacted sharply to earnings reports this week.

A number of stocks reacted sharply to earnings reports this week.

Dillards fell 7.5% to $35.24, after the department store said first-quarter profits fell 30% from the same period a year before Saks reported an 86% slide in first quarter profit from the year-ago period and the upmarket retailer fell 13.3% to $19.68.

Analog Devices slumped 11.2% to $35.67 and Network Appliance lost 16.3% to $31.80 this week after both chipmakers issued earnings warnings.

Toll Brothers rose 4.9% to $29.96 this week as investors hoped the worst was over for the builder of luxury homes.

Toll posted a 79% decline for its fiscal second-quarter profit as the company wrote down property values and refused to provide earnings guidance.

The S&P homebuilders index gained 3.8% this week, reducing its decline this year to 13.3%.

European Markets - Banks bore the brunt of the selling this week, forcing European equity markets to retreat from six-and-a-half year highs.

Italy’s financial stocks were particularly weak as investors took profits after weeks of heavy speculation on the sector’s next merger.

The FTSE Eurofirst 300 fell 0.2% over the week to 1,597.74.

So let's start in Germany where in Frankfurt Shares closed higher ahead of a long holiday weekend as investors took their buying cue from Wall Street, supported by positive economic and company news in Europe and the US, with insurers and automotive stocks leading a broadly based rally from Thursday's losses.

The DAX ended up 41.82 points or 0.54% at 7,739.20, while the MDAX added 1.58 points or 0.01% to 10,909.94.

The TecDAX declined 1.93 points or 0.22% to 885.87.

DAX futures were up 71.00 points or 0.92% at 7,760.00 while bund futures shed 0.33 point or 0.20% to 112.27.

Car stocks led sectoral gains, recovering from a pullback yesterday, with DaimlerChrysler adding 1.21 Eur or 1.83% at 67.20, automotive supplier Continental AG up 1.94 or 1.89% at 104.37 and Bayerische Motoren Werke improving 0.50 or 1.02% at 49.75.

M&A speculation gave a fillip to Continental, which has reportedly indicated its interest to offer around 10  billion Eur for Siemens automotive unit VDO. Continental has already said several times before that it is interested in buying VDO but both sides have not provided any figures so far.

Siemens itself was up 1.27 or 1.31% at 97.91.

Munich Re led the DAX30 with a gain of 3.17 or 2.34% at 138.37 while fellow insurer Allianz added 1.24 or 0.77% at 162.91.

Deutsche Boerse was up 2.98 at 171.50 on M&A hopes in the sector amidst Nasdaq Stock Market's 3.7  billion usd takeover offer for Scandinavian exchange operator OMX, dealers said.

On the downside, Deutsche Bank was off 3.61 Eur or 3.12% at 112.00 as it traded ex-dividend of 4.00 Eur today.

Deutsche Post eased 0.21 or 0.89% to 23.44. Germany's Federal Cartel Office head Bernhard Heitzer said the office still aims to abolish Deutsche Post's monopoly on letter delivery as of Jan 1 and rejected proposals to selectively allow only some competitors on Germany's mail market.

On the MDAX, Hugo Boss gained 0.65 or 1.47% at 44.93 as CEO Bruno Saelzer said in an interview that he does not expect the company to be incorporated into its parent Valentino Fashion Group if Permira buys more of the Italian fashion giant.

MLP was the biggest loser, off 0.48 or 2.78% at 16.79. Fresenius added 1.11 or 1.97% at 57.46.

Into France now where in Paris the market ended higher on M&A talk that lifted a number of individual stocks.

The CAC-40 index finished up 9.18 points or 0.15% at 6,057.49, on volume of 5.3  billion Euro.

Among CAC-40 stocks, 23 closed higher, 2 were unchanged and 14 closed lower. On the Matif, June CAC-40 futures were trading up 7.5 or 0.12% at 6,034.0.

On the broader indices, the SBF-80 index closed down 14.38 or 0.19% at 7,423.32, while the SBF-120 closed up 4.41 or 0.10% at 4,430.56.

The CAC-40 index made a tentative break into positive territory following the US market opening to end the day marginally higher, but still below the record highs registered earlier in the week.

Carrefour led the gains on the CAC-40, finishing up 1.23 Eur or 2.31% at 54.58 after rumours resurfaced of a possible leveraged buyout (LBO).

Axa closed up 0.36 or 1.14% at 32.06 after completing the sale of its entire stake in clothing retailer Camaieu to investment fund Cinven.

French business daily La Tribune also reported that Axa Private Equity, a unit of Axa, is to buy French food and pet food producer Diana Ingredients for more than 700  million Eur from investment fund Cognetas.

Other bank stocks posted gains as investors took advantage of yesterday's pullback in the sector to build positions.

Societe Generale closed up 0.37 or 0.26% at 145.18, while BNP Paribas added 1.41 or 1.58% to close at 90.87 and Credit Agricole rose 0.20 or 0.63% to 31.80.

Dexia, meanwhile, shed 0.08 or 0.33% to finish at 23.83, adding to yesterday's drop when investors reacted to a fall in first-quarter profit.

Small cap Ingenico ended the day at 21.60, up 0.56 or 2.66% and taking its gains since the start of the week to 8.92%.

The stock is being boosted by vague talk of a buyout, with both Thales and investment fund Cinven cited as potential candidates.

Business Objects ended the day up 0.78 or 2.64% at 30.33 after WestLB upgraded the software publisher to 'Buy' from 'Add' and increased its target price to 37 Eur from 33 in the belief the stock has 'a very good chance of enjoying a positive re-rating.'

On the downside, Schneider Electric was hit by profit-taking after yesterday's gains, shedding 2.18 or 2.01% to end at 106.05.

The group today announced it has acquired Ritto GmbH & Co Kg, a German firm that makes door-entry and intercom systems for residential and small tertiary buildings.

EDF also finished down, 0.35 or 0.51% weaker at 68.09 after gaining 5% in the previous two sessions, lifted by its intention to develop new-generation nuclear power plants in the UK as well as general speculation about consolidation among energy groups.

Outside the CAC-40, Air France-KLM fell 0.43 or 1.15% to 36.82, giving up some of this week's gains resulting from its strong full-year results and speculation about a possible move for Spanish carrier Iberia.

In Belgium Brussels shares closed lower, as the heavy weighting of financial stocks in the Bel 20 index meant that Fortis trading ex-dividend pulled the index lower.

At the close, the Bel 20 was down 32.84 points or 0.70% at 4,671.71.

Fortis was 0.91 Eur or 2.86% lower at 30.92 as it went ex-dividend, and was pushed down further by news that the consortium vying for Dutch peer ABN Amro said it will delay its announcement on whether or not it plans to make a formal bid for the bank until Tuesday May 29.

Peer heavyweight financial KBC was off 0.64 Eur or 0.62% at 103.12.

The group's asset management arm said that it has acquired a 51% stake in peer Liontamer, which is active in New Zealand and Australia, and KBC Private Equity said it has acquired a minority shareholding in Hungarian printing company Grafika Press for an undisclosed sum.

Dexia lost 0.09 Eur or 0.38% to 23.82.

Agfa-Gevaert was down 0.56 Eur or 2.84% at 19.13 after the imaging and software group was downgraded to 'hold' from 'buy' at SG Private Banking.

Telecoms provider Belgacom was 0.44 Eur or 1.28% lower at 33.84, whilst mobile telecoms company Mobistar fell 0.86 Eur or 1.32% to 64.35.

Specialty materials group Umicore was down 0.48 Eur or 0.31% at 155.89.

In positive territory, supermarket group Delhaize gained 0.18 Eur or 0.25% to 73.11.

Discount supermarket group Colruyt was 1.86 Eur or 1.08% higher at 174.40 and brewer Inbev gained 0.13 Eur or 0.22% to 59.50.

Outside the Bel 20, broadcast equipment manufacturer EVS was down 0.05 Eur or 0.09% at 58.75.

EVS shares were cut to 'hold' from 'accumulate' and saw their target price raised to 58 Eur from 50 at Delta Lloyd Securities, as the analyst said there is limited potential for the stock to go higher.

Shipping group CMB was 1.44 Eur or 2.55% higher at 57.94.

Yesterday the company said its unit Bocimar International has sold its Panamax vessel Jiangnan 2345 for 65  million usd.

Into The Netherlands now where in Amsterdam the AEX closed lower amid lacklustre trade ahead of a long weekend.

The AEX closed 0.51 points or 0.10% lower at 535.48, after trading in a range of 531.65-535.89.

Trading volumes were low as investors prepared for a long weekend which includes the Pentecost bank holiday on Monday.

Arcelor Mittal edged 0.02% lower at 43.32 Eur after the company said it was leaving its joint venture with Russian market peer Severstal.

Reed Elsevier shed 0.14% to 14.48 Eur and ASML dropped 0.16% to 18.49 Eur.

Fortis dropped 0.16% to 30.96 Eur as the share traded ex-dividend, and while investors were moving from Fortis to ABN Amro in anticipation of a possible bid announcement by the RBS consortium for ABN Amro on Tuesday, dealers said. ABN Amro rose 0.85% to 35.80 Eur.

Rodamco Europe shed 0.81% to 104.85 Eur and Akzo Nobel lost 0.85% to 59.55 Eur.

Corporate Express led decliners, shedding 0.93% to 9.62 Eur.

On the other end of the spectrum, ING rose 0.64% to 32.90 Eur, Aegon added 1.14% to 15.06 Eur after it said it has started its share buyback programme, and Vedior led gainers, adding 3.48% to 22 Eur.

Among midcap shares, Getronics dropped 4.15% to 5.54 Eur, Crucell shed 3.32% to 17.18 Eur and Ordina lost 2.73% to 16.39.

Wereldhave dropped 0.80% to 107.04 Eur after a downgrade to 'underweight' from 'neutral' at JP Morgan.

Tele Atlas rose 0.64% to 15.75 Eur, Oce added 1.45% to 14.71 and ASMI led gainers, adding 2.83% to 19.96 Eur.

Hopping into Switzerland now where Zurich saw markets close higher led higher by financial stocks and heavyweight Roche.

At the close, the Swiss Market Index was 24.32 points higher at 9,381.34, and the Swiss Performance Index rose 14.35 points to 7,628.76.

The Euro rose against the Swiss franc to 1.6513 SFr, as did the Dollar, to 1.2274 SFr.

The top faller was Swisscom, down 5.75 SFr or 1.3% at 430.25 SFr, on profit taking. Another notable faller was Swiss Life, down 3.50 SFr or 1.1% at 328.25, also hit by profit taking,

Also trading lower was Givaudan, down 8 SFr at 1,167 SFr and Zurich Financial, down 2.75 SFr at 377.75 SFr, not helped by a lowering of its rating to 'neutral' from 'overweight' at HSBC.

The top climber was Julius Baer, up 1 SFr or 1.1% at 90.6 SFr, followed by Synthes, up 1.2 SFr at 155.9 SFr.

UBS was last up 0.4 at 78.40 SFr, after announcing it is looking for options to divest its 20.7% stake in Swiss rival Julius Baer, with the lock-up period for the non-strategic holding expiring today.

At current market prices, proceeds from a disposal would be more than 4.1  billion SFr, which corresponds to a pre-tax capital gain of roughly 2.1  billion, which UBS plans to channel into its share buy-back programme.

Peer Credit Suisse was off 0.25 SFr at 91.65 SFr.

Elsewhere among drugmakers, Novartis added 0.15 SFr at 68.90, and Roche gained 0.6 SFr at 225.90, after announcing it expects a definite EU marketing authorisation for anemia drug Mircera in the coming weeks, after the EU Committee for Medicinal Products for Human Use earlier today recommended the anemia drug's authorization.

Shares of food giant Nestle were flat at 468.25.

Into Scandinavia now and to Sweden where Stockholm shares closed little changed after sharp gains in OMX following the bid by Nasdaq, and positive trade in lead telecoms helped offset profit taking elsewhere in the market.

The OMX Stockholm index closed down 0.17% at 415.13 points, while the OMX Stockholm 30 closed down 0.32% at 1,269.04. Turnover was 26.603  billion SKr.

The major movers within these indices were Holmen B, down 1.13% at 305; Getinge B, 0.58% higher at 161, and Assa Abloy B, down 1.25% at 158.

Holmen B was downgraded to 'sell' from 'hold' at Citigroup this morning after the broker said it sees one of the key drivers behind the earnings improvements in the European paper industry losing steam.

OMX was up 15.19% at 201. NASDAQ bid 0.502 new NASDAQ shares plus 94.3 SKr in cash, equivalent to 208.1 SKr, for each share in OMX, based on NASDAQ's closing price on May 23, valuing OMX at 25.1  billion SKr.

In Helskini we saw Finland 's Shares close slightly higher, led by bourse operator OMX AB following a 2.7  billion Eur takeover bid by Nasdaq, Nokian Tyres and Nokia.

The OMX Helsinki all-share index finished up 0.30% at 11,245.16 and the OMX Helsinki 25 index up 0.03% to 3,274.82. Volume was 1.29  billion Eur.

The Helsinki-listed shares of Sweden-based OMX, which owns the Helsinki bourse, rose 11.18% to 21.68 Eur. Nasdaq has bid 0.502 new Nasdaq shares plus 94.3 SKr in cash, equivalent to 208.1 SKr, for each share in Nordic and Baltic bourse owner OMX AB, based on Nasdaq's closing price on May 23.

The boards of both companies are backing the bid, along with shareholders representing 16.6% of the share capital.

Also supporting OMX was news that construction group SRV will list on the Helsinki stock exchange next month, providing a boost to exchange volumes.

Some 11.5  million new shares are being offered at 8.00-9.75 Eur per share, meaning a listing for 30.6 of its share capital, and valuing the company at up to 366  million Eur.

It was mixed session for the heavyweight stocks. Nokia added 0.97% to 19.77 Eur, while Neste Oil put on 1.65% to 27.70 Eur and Nokian Tyres gained 3.16% to 24.79 Eur.

But Elisa fell 2.48% to 20.81 Eur and Sampo shed 1.02% to 23.24 Eur.

Kemira GrowHow, which jumped 31% on a takeover bid by Norway's Yara yesterday, edged 0.82% lower to 12.03 Eur -- below the 12.12 Eur per share Yara is offering.

In forestries, UPM-Kymmene added 0.94% to 19.30 Eur and M-real advanced 1.57% to 5.19 Eur, and Stora Enso dropping 1.05% to 14.15 Eur.

In Denmark Copenhagen saw the market close flat in quiet trade amid a lack of leads ahead of the long weekend with markets closed on Monday.

The OMXC20 index closed down 1.41 points at 497.59, and the OXMCB Benchmark index shed 1.05 points to 480.46.

The OMXC All Share index was up 0.09 points at 482.95 on turnover of 5.00  billion DKr.

Vestas Wind Systems was down 4.00 DKr at 383.00. The group said it has won a patent infringement case brought against it by German wind power company Enercon GmbH.

In other news, daily Boersen said citing chief executive Ditlev Engel that Vestas expects prices for wind turbines to remain high.

Topdanmark fell 7.00 DKr to 1,031.00. Shares in the group were downgraded to 'reduce' from 'buy' at Jyske Bank on valuation grounds.

ALK Abello gained 1.00 DKr to 1,225.00 as Jyske Bank reiterated its 'buy' rating for the group.

AP Moller Maersk added 200 DKr to 67,000. Danish magazine Soefart said the group is investing 12  billion in oil rigs.

In other news, the magazine Computerworld said AP Moller has cancelled a 'job cartel' agreement with IBM, under which employees of one of the groups were not allowed to leave for the other.

OMX AB gained 15.00 DKr to 161.00 after Nasdaq placed a 3.7  billion usd bid for the Nordic stock exchange operator, dealers said.

SAS AB was down 2.00 DKr at 123.00. Eight flights on the operator's Stockholm-Copenhagen route have been cancelled today due to a strike by Swedish cabin crew, RB Boersen said.

Keops shed 0.20 DKr to 22.30. RB Boersen said Iceland's Baugur Group has increased its stake in the group to 30.6% from 29.8%.

IC Companys was down 1.00 DKr at 339.00. Gudme Raaschou upgraded its rating for the group to 'buy' from 'accumulate' with a price target hike to 400 DKr from 380 DKr per share.

DS Torm gained 3.50 DKr to 212.50. Jyske Bank reiterated its 'buy' rating for the group.

Bang & Olufsen was flat at 722.00. The group aims for 50 new shops per year in the B1 category, RB Boersen said, citing chief executive Peter Thostrup.

Novozymes shed 3.00 DKr to 592.00. RB Boersen said the group is opening a new lobbyism office in Washington D.C.

NKT Holding added 3.00 DKr to 528.00. Danske Equities raised its target price for the group to 570 DKr from 520 DKr, dealers said.

Among other shares, Novo Nordisk was down 7.00 DKr at 567.00, Genmab shed 7.50 DKr to 391.00 and DS Norden gained 10.00 DKr to 340.00.

And rounding out Scandinavia is Norway where in Oslo Share prices closed lower, tracking other major European markets following yesterday's sell off in the US after stronger-than-expected new homes sales data, although falls were limited as investors took heart from a 600  million usd extension to a key rig contract by Norsk Hydro ASA.

The OSEBX Benchmark index closed down 1.04% at 491.65, while the OSEAX All Share index lost 1.00% to finish at 559.18.

Total turnover amounted to 10.86  billion NKr.

Awilco, whose deal with Hydro is now worth 2  billion usd, closed up 3.86% at 75.30 NKr, while peer Seadrill Ltd gained 1.34% to finish at 113.25.

Seadrill also benefited from a couple of positive broker notes, out yesterday morning. Seadrill, owned by Norwegian shipping magnate John Fredriksen, is due to release its first quarter results next week, and according to TDN Finans, the consensus forecast is for operating profits of 79  million usd on sales of 333  million, up from 24  million and 192  million respectively last time.

Subsea 7 closed down 2.44% at 129.75, Golar LNG lost 0.47% to 107, and Petroleum Geo-Services fell 2.93% to 149.25.

Norwegian oil firms Statoil and Hydro also closed lower, extending yesterday's losses.

Statoil, which is scheduled to released its first quarter report next Wednesday, closed down 1.91% at 166.75.

Hydro, which is in the process of merging its oil and gas assets with Statoil, closed down 1.74% at 211.50.

The other major news in Oslo yesterday was regarding Altinex, a small Norwegian oil exploration and production company, which announced that unlisted rival Norwegian Energy Company (Noreco) was making a bid for it.

Noreco said it now controls almost 36% of Altinex's shares, and was making a cash offer at 1.575 NKr per share.

Shares in Altinex closed up 6.25% at 1.70 NKr, on hopes of a rival bid or an improved offer, dealers said.

DNO closed up 1.86% at 12.05, building on recent gains, while Aker Yards gained 1.75% to finish the week at 101.50.

Industrial holding company Aker closed down 0.25% at 392, while engineering group Aker Kvaerner fell 1.85% to 146.25.

Yara International finished 1.37% lower at 179.50, easing from yesterday's highs as investors got to grips with the chemicals group's 12.12 Euro per share takeover bid for Finland's Kemira GrowHow.

Telenor, which held its capital markets day in Oslo yesterday, closed 1.70% weaker at 116 NKr.

The Norwegian telecoms firm told investors it was on the hunt for acquisitions, particularly in Asia, to help grow its business further.

Down now to the Mediterranean and starting with Greece where in Athens shares closed slightly lower in a session characterized by profit-taking ahead of the long weekend, but Alpha Bank posted gains.

The ASE general index and blue chip index both shed 0.3% to 4,919.5 and 2,637.5, respectively. Mid caps edged 0.2% higher to 6,240.2 and small caps closed 0.2% lower at 1,055.1 in solid trading volume of roughly 382  million Eur.

Decliners outnumbered advancers 149 to 106, while 59 were unchanged.

Alpha Bank led blue chip gainers and rose 2.1% to 23.58 Eur on a surge of late buying interest as brokers feel it has underperformed peers.

Electricity utility Public Power Corp fell 0.9% to 20.6 Eur after UBS said in a report that they would have a difficult second and third quarter in addition to the lacklustre first quarter.

Luxury goods retailer Folli-Follie dropped 1.2% to 30.5 Eur on profit taking after recently outperforming the market and ahead of first quarter results to be released Tuesday.

Mobile operator Cosmote closed 0.8% lower at 23.5 Eur after releasing first quarter results yesterday which were broadly inline. Brokers Piraeus Sec and Merrill Lynch both increased the shares' target price on account of its solid Romanian operations.

Engineering company Metka fell 0.9% to 15.14 Eur. They said that they intend to bid for a 14.5  million Eur project, either alone or through a joint venture, regarding a PPC hydroelectric station on Rhodes.

Betting technology group Intralot slid 0.6% to 23.44 Eur ahead of their first quarter results to be released Tuesday.

Hellenic Telecoms (OTE) closed flat at 22.7 Eur. Thomson Financial consensus forecasts see first quarter net profit up 7.3% on strong local fixed line and mobile unit contribution when they announce results next Wednesday.

The Athens Stock Exchange will be closed on Monday for the public holiday of Pentacost Monday.

Neighbours Italy saw Milan share prices close flat in cautious trading ahead of US and other countries' long holiday weekends, amid uncertainties about the direction of interest rates, with gains in Mediolanum on alliance hopes offset by falls in Fastweb after the completion of its takeover by Swisscom.

The Mibtel index was up 0.05% to 33,619 points and the S&P/Mib gained 0.18% to 43,019.

Volume was an estimated 8.758  billion Eur.

Eni rose 0.23% to 26.30 Eur, Saipem rose 1.31% to 23.29 and Tenaris was up 1.21% to 17.66.

Mediolanum gained 4.58% to 6.625 after comments from its CEO Ennio Doris that the firm has received approaches from foreign buyers.

Analysts said Mediolanum is a solid target for an alliance, given upcoming pension market reform, but core shareholders may not want to sell in short term.

Capitalia rose 1.34% to 7.74 and Unicredito was up 1.13% to 7.005, recovering from weakness after last weekend's announcement of their merger.

Mediobanca fell 0.25% to 17.52 and Generali rose 0.42% to 33.90. Brokers expect Unicredito/Capitalia to cut their stakes in Mediobanca and Generali quickly.

BPM added 0.22% to 11.63. Reports say a key employee shareholder group is reluctant to support BPM's planned merger with BPER, up 0.39% to 20.45. Fastweb fell 2.50% to 41.79. Brokers said trading volumes have slumped since the Swisscom takeover, with an upcoming business plan a possible new spur.

Telecom Italia was down 0.83% to 2.16, giving up some recent merger/alliance speculation gains.

In the media sector, RCS lost 0.52% to 4.025 after Citgroup started coverage with a 'buy' and a 4.70 Eur target, citing RCS' ability to catch market trends.

L'Espresso fell 0.63% to 3.7125 after Citi cut its target to 4.1 Eur from 4.3, leaving its 'hold' stance intact, while Mondadori fell 0.38% to 7.67 after Citi rated it 'sell', cutting the target to 7.0, from 7.3.

Alitalia was down 1.12% to 0.849 on continued uncertainty about its privatisation. Analysts see two out of the three bidding consortia -- Italy's Air One and Texas Pacific linking up on their bid.

Finmeccanica rose 0.83% to 23.02 after signing a train signalling cooperation deal in Russia. Deutsche Bank rated the stock 'hold', with a 22.5 Eur target, against a previous 21.0.

And last but by no means least in Europe yesterday, we go to Spain where in Madrid Share prices closed lower in extended profit-taking, though off session lows with construction companies leading the losers, while Iberia closed higher.

The IBEX-35 index closed down 41.7 points at 15,053.2 after trading in a range of 14,970-15,086 on turnover of 6.9  billion Eur.

The IBEX-35 index moved off lows through the afternoon after a positive start on Wall Street, and while it failed to claw back to the black by the close, the index retained the key 15,000 mark.

Selected construction companies led the losers, with Sacyr down 0.72 Eur at 41.68, FCC falling 1.25 to 74.05, Ferrovial dropping 0.50 to 78.50 and ACS slipping 0.40 to 48.60.

Iberia strongly outperformed, adding 0.11 or 2.86% to 3.95, buoyed by speculation of a bidding war.

Selected energy players were mixed with Gas Natural reversing earlier losses, up 0.01 at 43.72, Iberdrola flat at 41.48, while Union Fenosa slipped 0.04 at 42.46.

Acciona was 1.15 higher at 192.05, helped by positive outlook for its energy division and on a rebound from late session falls yesterday.

Leading blue chips were also mixed, with Endesa up 0.03 at 40.05 and SCH adding 0.04 to 13.67, while BBVA was down 0.09 at 18.61 and Telefonica slipped 0.08 to 16.72.

Repsol YPF fell 0.15 to 26.60.

Altadis was flat at 50.15, off earlier lows, following reports it is back at the negotiating table with Imperial over a possible merger.

Among second liners, Tecnocom, was up 0.65 or 5.78% at 11.89, on news of a 2-for-1 stock split and BME added 1.42 or 3.60% to 40.86, amid sector M&A news.  

UK Market - ITV jumped 3.9% to 119.10p Friday on rumours that British Sky Broadcasting was preparing to sell its 17.9% stake in the television broadcaster to RTL, the owner of Channel 5.

ITV had heavy trading with almost 98m shares changing hands, more than twice this year’s daily average, encouraging talk that Sky would prefer to sell its ITV stake to RTL, a free-to-air broadcaster, rather than Virgin, which is a more direct competitor.

Sky is facing an investigation of its ITV holding by the Competition Commission and may prefer to time its own exit than wait for further regulatory pressure.

The FTSE 100 fell 5.1 points, or 0.1%, to 6,570.5 while the FTSE 250 retreated 72.9 points, or 0.6%, to 12,057.6 in a relatively subdued session Friday as traders looked forward to the long holiday weekend. Trading volumes were light with 3.1m shares changing hands.

Over the week, the blue-chip index lost 1.1% while the mid-cap index fell 1.2%.

Aegis added 2.1% to 148½p after a positive trading update from the media and market research group. In the US, about $16bn has been spent on digital agency acquisitions since the start of the year and Andrew Walsh, of Bridgewell, says these deals suggest a valuation of about £600m for Aegis’ Isobar business.

Resistance to Vincent Bolloré’s attempts to win seats on the Aegis board are growing, raising hopes that he might sell his stake to another party prepared to pay a take-out premium for the whole group.

Some traders believe MrBolloré is not in a rush to sell and will exercise patience in any plans to merge Aegis with Havas of France.

Emap gained 2% at 874p after Morgan Stanley said the sudden departure of Tom Moloney as chief executive provided a possible catalyst for a break-up of the consumer and business media group. Analyst Patrick Wellington upgraded his recommendation from “equalweight” to “overweight and raised his price target from 770p to £10.25. He said a break-up combined with a share buy-back could imply a price of £12.26.

Trinity Mirror added 1.8% at 564p amid talk that it was mulling over a possible £200m offer for its Southern newspapers business from Archant, one of the UK’s largest private newspaper groups. Daily Mail & General Trust is also thought to be considering a bid for some of Trinity Mirror’s newspaper assets.

Admiral rose 1.6% to 994p after the car insurer said several parties had expressed interest in the sale of Confused.com, its insurance premium comparison website, expected to raise £500m-£700m.

Computacenter, the UK’s biggest retailer of IT hardware to businesses, fell 5.6% to 240¼p after Goldman Sachs initiated coverage with a “sell” recommendation and 250p price target. Goldman said structural deterioration in its products business was unlikely to stop and growth in services remained an insufficient offset.

Shareholders in Taylor Woodrow, 3.2% lower at 460p, are due to vote on the proposed merger with fellow housebuilder Wimpey, down 1.7% to 619½p, on Tuesday. Hopes of a counterbid by Persimmon, 1.5% lower at £13.46, looked to be waning Friday.

Bid speculation continues in the water sector with Pennon up 5.4% to 699p and Northumbrian Water 3.3% higher at 345½p.

British Airways rose 0.8% to 461½p as it emerged that Goldman Sachs’ stake, including client holdings, in the airline had risen above 5%.

International Power fell 1% to 452½p after it confirmed plans to buy the remaining 50% of its Australian retail partnership Energy Australia for £59m.

Concerns are mounting that International Power might have been outmanoeuvred by rivals EDF and Toshiba in positioning for the government’s plans to build nuclear power stations.

Japan & Asia Pacific - Major Asian markets cringed on Friday unable to brave an overnight fall on Wall Street. Sentiment was also dampened by global concerns over the stability of the Chinese market. A more-than-expected US home sales in April dampened the hope for a rate-cut in the US and led to a drop in export-related stocks on the Japanese market. The Australian market fell on losses by mining stocks due to declining metal prices.

However, the Chinese market, which scared the other markets in the region was unaffected, as sustained fund inflows and bargain-hunting guarded the Chinese shares.

Japan ese shares fell sharply, as an overnight fall on Wall Street descended heavily on the sentiment of the Japanese market, which could not yet wriggle itself out of the fear from former Federal Reserve Chairman Alan Greenspan's ominous outlook on the Chinese market.

Sentiment on export-related stocks was weaker after data revealed a 16% rise in US home sales in April, which was construed as giving way for a possible rate-hike in the US at the time when markets are expecting for a cut in rates.

The benchmark Nikkei 225 index plunged 215.76 points or 1.2% to close at 17,481.21. The TOPIX index of all first-section issues lost 22.57 points or 1.3% to 1,715.54.

Among technology stocks, Advantest declined 0.8%. Canon slumped 2% and Honda Motor shed 0.7%. Nissan Motor fell 1.8% and Toyota Motor lost 1.5%. Sony and Sharp dropped 1.3% each.

In the property sector, Nomura Real Estate slipped 1.8% and Mitsui Fudosan tumbled 2.4%. Mitsubishi Estate slid 2.7%.

Fujitsu surged up 5.4% after the company revealed its plan to repurchase 34.4 million shares from the open market for up to 28 billion Yen.

The Hong Kong market fell sharply, as an overnight fall on Wall Street and global concern over the rally in Chinese shares colluded to haunt investors.

The main Hang Seng Index slumped 278.31 points or 1.3% to close at 20,520.66. The property sub-index plunged 320.04 points or 1.3% to 24,859.88. The Hang Seng China Enterprises Index tumbled 224.54 points or 2.1% to 10,649.84.

Among property stocks, Cheung Kong fell 1.5% and Wharf Holdings declined 1.1%. Henderson Land shed 0.7%, while Sun Hung Kai and New World lost 0.8% and 0.5%, respectively. Sino Land and Hang Lung had respective losses of 1.5% and 2.2%.

Blue chips also were not spared. HSBC shed 0.4% and Hutchinson gave up 0.9%. Swire Pacific lost 0.8% and heavyweight China Mobile retreated 1.9%.

Even in an adversary climate, shares of companies with good earnings results had not failed to attract investors. Lenovo shot up 14% after the company reported that it raked in profit of US$161.14 million for the fiscal year ended in March, up from US$22.21 million a year before.

The South Korea n market eased, as an overnight Wall Street fall disheartened investors and led to heavy selling of large caps.

The key Korea Composite Stock Price Index shed 2.03 points or 0.1% to close at 1,644.56. Among technology stocks, Samsung Electronics declined 1.8%, but Hynix Semiconductor climbed 1.5%. LG Corp. surged up 2.6% and LG. Philips LCD advanced 0.8%. LG Electronics leapt 1.9%.

In the steel sector, POSCO fell 1.5%, but Dongkuk Steel Mill rose 1.3%. Korea Iron & Steel advanced 0.6% and Hyundai Steel soared 2.6%.

Among financial stocks, Kookmin Bank was down 0.2% and Hyundai Securities lost 1%. Woorie Finance declined 1.1%, but Shinhan Group ended up 0.5%.

Chines e shares rose modestly on sustained fund inflows and bargain-hunting, leaving its counterparts in the region in the dust, ignoring concerns among global markets about the rally in the Chinese market.

The benchmark Shanghai Composite Index rose 28.64 points or 0.7% to 4,179.78. Among A-shares, attraction centered upon financial stocks after China Securities Regulatory Commission officials said they had not yet carved out any draft on allowing foreign security firms into the Chinese market. A decision to allow foreign securities firms expand in the brokerage, proprietary trading and fund management areas of the Chinese market was arrived between the US and China at an economic dialogue.

In the financial sector, CITIC Securities jumped 6.7% and Hong Yuan Securities climbed 6.9%. Shaanxi International Trust & Investment increased 3%.

However, auto stocks were hurt by profit taking. FAW Car declined more than a% and Shanghai Automotive fell 1.7%. Tianjin Faw Xiali Automotive slumped 2.6%.

Thailand 's shares dropped 0.2% to 719.14, tracking losses in regional markets.

Indonesia shares closed lower, weighed down by bearish Asian markets plus a weaker local currency. The Jakarta Stock Exchange Composite index closed down 0.9% to 2,060.434.

Philippine shares dropped after reaching record highs earlier this week, with investors taking profits across the board. The benchmark 30-company Philippine Stock Exchange Index fell 29.01 points, or 0.8%, at 3,441.76.

Taiwan 's shares slipped, as investors cashed in on the market's recent strength. The Weighted Price Index of the Taiwan Stock Exchange fell 56.44 points, or 0.7%, to close at 8159.97 points.

To India now where coming back strongly from the initial slide, the market closed on an impressive note outperforming most of its Asian peers.

After opening with a gap down of around 170 points, the benchmark Sensex showed smart recovery and ended the day with good gains.

The Sensex ended with a gain of over 120 points on the back of late buying by funds in IT and capital goods sector stocks. The 30-share index, Sensex, closed the session with a gain of 120.34 points, or 0.85% higher at 14,338.45.

The Australian market incurred moderate losses, as profit taking set in after an overnight downturn on Wall Street and metal stocks fell on declining metal prices.

The benchmark S&P/ASX 200 index lost 26.30 points or 0.4% to close at 6,252.80. Among mining stocks, Alumina fell 1.2%. BHP Billiton and Rio Tinto lost 1.1% and 1.4%, respectively. Cons Minerals gave up 1.4% and Kagara Zinc plunged 2.7%. Lihir Gold declined 2.5% and Newcrest was down 0.5%.

Among others, ABC Learning tumbled 3.6%, but Aristocrat Leisure rose 0.5%. AWB jumped 4%, while CSL slid 2.1%. James Hardie jumped 2.2%. Qantas Airways leaped 3.7% after an analyst raised its rating on Qantas' shares.

The New Zealand share market fell modestly, as shares across the board withered after an overnight fall on Wall Street. The benchmark NZX 50 share index lost 27.98 points or 0.7% to close at 4,305.25.

Loss was wider and broader affecting most of the stocks. ANZ Bank plunged nearly 2%. Cavalier dropped 2.2% and Fletcher Building declined 1.3%. Fisher & Paykel Appliances was down 0.5%, while Fisher & Paykel Healthcare and Freightways slumped 3% each.

Gainers were scanty. TrustPower and Telecom added 0.2%, while Skellerup advanced 0.8%. Air New Zealand improved 0.4% and Contact Energy edged up 0.1%. New Zealand Oil & Gas and New Zealand Exchange had singular gains of 2% and 2.5%, respectively. Tower was also highlighted with a 2.6% rise.

Commodities - Crude oil futures Friday fell from their nine-month highs but Brent crude futures looked to finish the week above $70 a barrel for the first time since August.

Oil prices have been boosted this week by a strike in Nigeria that threatened more of the country’s output, which has already seen a third of its capacity shut, and Iran’s defiance over plans to expand its nuclear programme.

ICE Brent for July delivery slipped 22 cents to $70.50 a barrel, down from its intra-day high of $71.22.

July Brent touched a nine-month high of $71.80 a barrel on Thursday. Brent has risen about $1 this week.

The price difference between Brent and US benchmark West Texas Intermediate widened to a record $6.50 on Thursday. July West Texas Intermediate added 47 cents to $64.64 a barrel in late morning trade on the New York Mercantile Exchange. WTI prices were relatively flat on the week.

US and UK markets will be closed on Monday. In the US, the Memorial Day holiday on Monday is traditionally the start of the US summer peak driving season.

Gold prices rose $1.20 to $655.20 a troy ounce Friday but were down about $5 on the week. Platinum prices slipped $14 to $1,266 a troy ounce, down $40 on the week. Metal prices weakened this week on a stronger Dollar, which strengthened on US economic data that indicated the slump in US housing may be stabilising.

Copper prices gained Friday but were down on the week. The three-month copper price gained $200 to $7,200 a tonne on the London Metal Exchange, down $72 on the week. Copper prices have fallen 13% from their 12-month high touched earlier in the month.

The benchmark robusta coffee futures contract rose $14 to $1,740 a tonne on Euronext-Liffe. The July robusta contract hit an eight-year high of $1,757 a tonne. Arabica coffee futures slipped 0.45 cents to $1.1290 a Pound on the New York Board of Trade.

Wheat futures in the US and Europe rose after Ukraine warned of a severe drought, which had killed about 400,000ha of crops.

Soft red winter wheat futures gained 5.5 cents to $4.96 a bushel on the Chicago Board of Trade. French wheat futures rose to a seven-month high of €162 a tonne on Euronext-Liffe before receding to €159.50, up 50 cents on the day.

US soyoil prices soared to near 23-year highs Friday as oilseed prices gained on the increased demand for making biodiesel. The CBOT soyoil futures hit an intra-day high of 35.70 cents a Pound before easing to 35.71, up 0.13 cents on the day.

The rise was fuelled by palm oil futures in Malaysia rising to a nine-year high.

Currencies - Sterling was the best performing major currency this week as expectations of further UK interest rates rises heightened.

The trigger was the release on Wednesday of the minutes of the Bank of England’s May monetary policy committee, which showed all nine members had voted to raise UK interest rates by 25 basis points to 5.5% and had even considered a 50-basis-point move.

The news came as a surprise to investors, who had been expecting at least one member to oppose the move.

Over the week, the Pound rose 0.6% to $1.9860 against the Dollar, 0.9% to £0.6780 against the Euro and 1% to Y241.40 against the Yen.

The Yen gyrated, following the swings on global equity markets.

The Japanese currency fell to a record low against the Euro early in the week as buoyant stock markets depressed risk aversion and saw increased demand for carry trades, in which the purchase of riskier high-yielding assets is funded by selling the low-yielding Yen.

However, jitters on global equity markets later in the week – sparked in part by a warning of a “dramatic contraction” in Chinese stocks by Alan Greenspan, former chairman of the Federal Reserve – saw investors buy back the Yen.

The Yen was little changed at Y163.60 against the Euro on the week and eased 0.3% to Y121.50 against the Dollar.

Conversely, emerging market currencies enjoyed a strong start to the week, rallying along with global equity markets and risk appetite.

The Philippine peso hit a seven-year high of 45.835 pesos against the Dollar while the Brazilian real, the Indonesian rupiah and the Turkish lira all held close to multi-year peaks.

However, rising risk aversion saw a sell-off later in the week, with the South African rand and the Turkish lira the worst affected owing to their reliance on external funding. The rand fell 1.5% to R7.0830 and the Turkish lira 0.6% to TL1.3295 against the Dollar on the week.

Meanwhile, the market showed little reaction to the failure of the US and China to settle their differences over the pace of renminbi revaluation against the Dollar following talks in Washington.

Indeed, a combination of higher US yields and better-than-expected US housing data helped the Dollar rise 0.4% to $1.3460 against the Euro over the week.

Elsewhere, rising oil prices lifted the currencies of energy-exporting countries. The Canadian Dollar, which has risen strongly in recent weeks against its US counterpart amid growing expectations that the Bank of Canada would raise interest by the end of the year, climbed 0.8% to a near 30-year high of C$1.0795 over the week while the Norwegian krone gained 0.5% to NKr6.0100.

The Rand firmed slightly as the Dollar slipped on softer home sales data on Friday, but next week's outlook hinged on a slew of local economic data due out from Tuesday. At the close the Rand was trading at R7.1066/$, about 0.54% firmer than its New York close of R7.1450 on Thursday.

As always, closing out currencies here in China with the RMB. The RMB finished Friday at 7.6527 to the Dollar on the over-the-counter (OTC) market, down from a new high of 7.6519 Thursday.

China - Nobody likes not being invited to a party. That’s why investors often choose to ignore warnings that their stock buying is getting out of hand.

Alan Greenspan famously tried to cool things down in 1996 by questioning whether “irrational exuberance” had gripped stock buyers in the United States. It didn’t work: Prices would continue to climb for more than three years before plunging into a prolonged downturn.

Now Chinese securities regulators are hoping to knock some sense into investors here. So much money is pouring into stocks that the benchmark Shanghai Composite Index has more than doubled in the last year to a record high.

In recent days, Chinese securities regulators have twice warned buyers of Class A shares on domestic markets, which are mostly closed to foreign investors and largely driven by individual buying. One said that investors “should be fully aware that there exists no stock on earth whose prices only surge and never slump.” The next told mutual-fund managers to tame speculation.

The big money fueling such gains comes from China’s rising middle class. They have benefited from the country’s expanding economy but have few lucrative investment options since interest rates on savings are being outstripped by rising inflation. That’s unsettling for a population that still keeps a majority of its assets in cash and bank deposits, which now stand at $2.5 trillion, or about 88% of China’s gross domestic product.

There were some 8.56 million new equity accounts opened in the first quarter of this year in China, compared with 5.38 million for all of 2006.

Such gains do have some strong fundamental backing. Listed companies’ earnings grew 44% in 2006 from the year before, while year-over-year growth more than doubled in the first quarter of 2007. At the same time, the overall economy expanded by 11% in the first quarter from a year ago.

That doesn’t mean this boom will last forever. The more the Chinese market gains, the higher the risk of a serious fall.

A stock market collapse will most hurt the Chinese moms and pops who are funding the rally. But the impact of a dramatic market decline will be felt outside the country’s borders.

Global investors got a taste of that back in February, when a nearly 9% one-day tumble in the Shanghai index sent stocks worldwide plunging on fears of weakening demand from the powerful Chinese economy.

Share prices most everywhere rebounded fast after that plunge, but who knows what will happen next time. That’s why Chinese authorities need to take action while they can, before equity price gains push stock valuations closer to bubble territory.

Even Hong Kong tycoon Li Ka-shing, one of the richest people in Asia, expressed concerns this week over the stock gains, saying he is worried about high price-to-earnings ratios that have created a “bubble.”

What is troubling is that most of these investors are new to trading stocks, yet they are going after lower-quality shares without considering the downside risk. In the case of a severe correction, this could lead to social instability.

Delays in policy actions will run the risks of severely impairing households’ balance sheets, exacerbating income and wealth distribution, and setting back years of progress made on capital market reform.

The verbal warnings like those given this month are one tool Chinese officials can use, but their efforts have to go farther. The possibilities include larger-than-expected increases in borrowing costs, probing the misuse of bank loans for stock speculation and raising taxes on equity transactions.

China’s banking regulator took the big step last week in announcing it would allow approved mainland banks to invest in foreign equities on behalf of clients, expanding the program beyond just fixed-income products. That would widen sharply the availability of investments to this hungry group of investors.

Beijing on Friday also raised interest rates for the second time in just over two months and tightened bank credit to slow its economy, which is expected to top 10% for a fifth straight year.

The takeaway from all this should be that Chinese stocks are getting dangerously close to being overextended, much like investors in US markets were starting in the late 1990s.

Just look at the Nasdaq composite index’s gains from the start of 1998 through April 2000, right after it peaked. Over 560 trading days, the Nasdaq rose 212%, crossing 5,000 for the first time. Today, it is worth half of that.

The Shanghai Composite Index has seen almost identical gains since the start of 2005 over the same number of trading days. Maybe that is just pure coincidence, but it sure looks like a red flag to me.