US Markets - US equity benchmarks fell on Friday and while they posted a modest rise this week, June was their worst monthly performance since February.

This month was tough going for stocks outside of the energy and technology sectors.

The financial sector extended its loss for the month to 4.3% on Friday. Concerns over the sector's exposure to subprime mortgage troubles and a potential credit crunch sparked renewed selling. That sank an early rally in the broad market on news that core inflation for May was benign.

The S&P 500 index fell 0.2% to close at 1,53.35, for a gain of 0.1% this week. That left the S&P lower by 1.8% in June, its second monthly decline this year after a loss of 2.2% in February.

The Nasdaq Composite closed 0.2% lower at 2,603.23, a return of 0.6% this week. For June, the Nasdaq fell 0.05%. The Dow Jones Industrial Average lost 0.1% to 13,408.62, for a rise of 0.4% since Monday. For the month, bluechips fell 1.6%, less than its 2.8% fall in February.

Returns for the leading benchmarks during the second quarter were led by the Dow's rise of 8.5%. The Nasdaq gained 7.5% and the S&P rose 5.8% in the last three months.

However, since the Dow and the S&P both set record closes of 13,676.32 and 1,539.18 in early June, sentiment has been hurt by a number of factors.

Through June equity investor worries have ranged from inflation angst to an unwinding of expectations that the Fed will ease in 2007 to outright fear that the leveraged buy-out spigot will dry up, among many others.

A look at the ten major S&P sectors reveals that utilities, which are sensitive to interest rates, fell 5.3% this month. It was also the only leading group to record a negative return, down 1.1%, for the second quarter.

June was a tough month for financials, and it is the only leading sector that is currently negative for the year, down 2%. Bear Stearns fell 2.8% to $140 on Friday. Home builders and real estate stocks also performed weakly this month as housing woes increased.

Blackstone slid 16.5% to $29.27, this week, extending losses below its recent $31 listing price.

In contrast, energy and information technology sectors led gains this month – up 1.7% and 0.6% – and during the second quarter, up 14.3% and 10.2% respectively.

A big gainer among technology stocks this week, was Research in Motion. Its fiscal first quarter earnings rose 73% amid strong sales of its BlackBerry wireless e-mail devices and the company also announced a three-for-one stock split. RIM also issued upside second quarter profit guidance and shares rose 20.8% to $199.99 on Friday

In earnings news this week, Palm reported a 44% slide in fiscal fourth-quarter profit in spite of record sales of its Treo smartphones. Higher costs and increased competition hurt the bottom line. The stock fell 3.3% to $16.02 on Friday.

Apple, ahead of its iPhone going on sale in the US later on Friday, rose 1.2% to $122.04.

Citigroup views the stock as a hold and said: "While we remain very fond of Apple's long-term story and outlook, we expect a better near-term "sell on the news” entry opportunity to appear once the pre-launch hype tapers off.”

Cisco, gained 3.5% to $27.85 this week. A brokerage upgrade for the tech bellwether boosted tech stocks in general.

Among blue chips,General Motors rose 6.6% to $37.80 this week and reached its highest price since January 2005, at $38.66, on Friday. The carmaker was the best performing Dow and S&P stock in June, up 26%. This week GM sold its Allison Transmission commercial and military business for about $5.6bn to two private equity firms.

Goldman Sachs said the shares could rise more should GM's talks with labour unions end on a positive note for carmakers seeking to control legacy medical and retirement costs. Buy-out announcements continued to arrive in the past week in spite of credit worries.

In deal news on Friday, Komag jumped 7.8% to $31.89, up 21.9% this week, on news it will be bought for $1bn, or $32.25 a share, by Western Digital, a hard disk drive maker. Western fell 0.9% to $19.35.

Earlier this week, Guitar Center accepted a $1.9bn cash buy-out offer from a private equity firm and its shares soared 16.7% to $59.81. People's United Financial bought Chittenden Corporation for $1.9 bn in cash and stock. Chittenden shares rose 25% to $34.95, while People's fell 6.7% to $17.73.

European suitors also sought US companies this week. Basell, the Dutch chemical company, agreed to buy Huntsman, the US chemical concern, for $6bn. Huntsman rose 26.9% to $24.31.

Roche, the Swiss drug maker, launched a hostile bid for Ventana Medical Systems, a tissue-based diagnostics specialist. Ventana surged 48.7% to $77.27 this week.

European Markets - European equities rose this week as merger activity helped distance the market from the uncertainty facing financial stocks in the wake of the US subprime mortgage scandal.

As the end of the first half of the trading year approached, the market hit its usual summer doldrums and volatility returned. On June 18, the FTSE Eurofirst 300 hit a six-year peak of 1,630.69, before falling 3.5% over the next 10 days.

Nevertheless, the benchmark index closed on Friday at 1,605.33, up 0.4% on the week, 5.7% during the second quarter, and by 8.2% since the beginning of the year.

So starting our country-by-country focus we go to Frankfurt where German shares closed higher for a second day, led by Adidas and tracking Wall Street, which received a boost from reports showing consumer and construction spending are gaining.

The DAX was 85.96 points or 1.09% higher at 8,007.32, having traded between 7,901.60 and 8,007.74.

The MDAX gained 61.35 points or 0.56% to 11,023.94, while the TecDAX was 8.59 points or 0.93% higher at 932.47.

DAX futures were up 79.00 points or 0.99% at 8,083.00, while bund futures slid 0.04 or 0.04% to 110.77.

On the Frankfurt trading floor, Adidas led the blue-chip pack higher, gaining 1.27 Eur or 2.79% to 46.78 Eur.

BASF advanced 2.44 Eur or 2.57% to 97.24 Eur and Linde rose 1.25 Eur or 1.42% to 89.25 Eur.

Traders pointed to comments from Werner Wenning, the CEO of competitor Bayer AG, that the chemical sector is likely to grow strongly, which boosted the two stocks.

Deutsche Postbank, rose 1.07 Eur or 1.67% to 65.07 Eur as traders said rumours of a possible takeover from Commerzbank were perhaps making their rounds again.

Commerzbank was up 0.52 Eur or 1.49% at 35.49 Eur.

Volkswagen gained 1.45 Eur or 1.24% to 118.10 Eur after a report in the newspaper China Daily said that the automaker's Chinese joint venture FAW Volkswagen is expected to increase profits by 25% this year.

Deutsche Boerse added 1.63 Eur or 1.98% to 83.75 Eur, swinging back from earlier losses.

The biggest loser Friday was Infineon, one of only two declining stocks, which slid 0.01 Eur or 0.08% to 12.31.

Hypo Real Estate declined 0.02 Eur or 0.04% to 48.01 Eur.

Over on the MDAX, Wincor Nixdorf was the top gainer, having jumped 2.65 Eur or 4.01% to 68.80 Eur.

Norddeutsche Affinerie rose 0.57 Eur or 1.77% to 32.72 Eur.

Into France now where in Paris Share prices closed higher, recovering from a mid-session drop, as a series of positive US economic indicators drove early gains on Wall Street.

The CAC-40 index finished up 48.62 points, or 0.81%, at 6,054.93.

Volume for the day on the CAC-40 was 6.9 bln Euro.

Among CAC-40 stocks, 33 closed higher and 7 closed lower.

On the Matif, July CAC-40 futures were trading up 28.5, or 0.47%, at 6,046.5.

On the broader indices, the SBF-80 index closed up 22.69, or 0.31%, at 7,238.29, and the SBF-120 ended 32.46, or 0.74%, higher at 4,412.76.

In Paris, the positive US news enouraged investors to put aside recent worries about the housing market and rising interest rates.

Banking stocks notably recovered from earlier losses, with BNP Paribas ending up 1.36 or 1.56% at 88.36, Credit Agricole adding 0.26 or 0.87% to 30.19 and Societe Generale rising 0.78 or 0.57% to 64.45.

Market heavyweight Total also pushed the CAC higher, closing up 0.94 or 1.58% at 60.26.

Like Thursday, when it rose 3.23%, Total was lifted by high crude prices, which again crossed the 70 usd a barrel mark in New York.

Investors also welcomed Total's announcement that production has started at Angola's Rosa oil field.

The French group has a 40% stake in the consortium operating Block 17, the area where the Rosa field is located.

Air Liquide led bluechip climbers at the close, up 2.87 or 3.03% at 97.44, on the back of takeover talk.

Dealers reported vague rumours of a leveraged buyout of the company, with an offer price of 116 Eur per share being mentioned.

Outside the CAC-40, yacht builder Rodriguez Group repeated yesterday's strong gains, adding 2.65 or 6.63% to 42.65, as investors continued to warm to its upbeat outlook despite a fall in first-half profit.

Homebuilder Nexity surged 3.17 or 5.38% to 62.05 after it said the group created by its merger with the real-estate assets of Caisse Nationale des Caisses d'Epargne (CNCE) is expected to generate net profit of over 220 mln Eur in full-year 2007.

Looking further ahead, over the 2007-10 period, Nexity expects synergies from the deal to deliver average annual growth of more than 11% in sales and of 8-10% in net profit.

In the energy sector, Gaz de France rose 0.25 or 0.67% to 37.49 and Suez added 0.29 or 0.69% to 42.49 amid continuing uncertainty over what line the government will take on the proposed merger of the two groups.

Fellow state-owned utility EDF fell 0.35 or 0.43% to 80.28. Chief executive Pierre Gadonneix said on French radio this morning that his group is preparing itself for all eventualities regarding GDF, including a merger between the two groups which, he added, is 'clearly' a possibility.

Danone ended 1.27 or 2.16% higher at 60.02.

LVMH ended up 0.96 or 1.14% at 85.54. Les Echos reported that Bernard Arnault may announce Monday both the purchase of the business daily, currently a unit of Pearson, and the sale of La Tribune, already owned by the LVMH CEO.

Following contacts with Arnault, France's culture minister told employees' representatives yesterday that the businessman would make an announcement in a few days.

On the downside, Sanofi-Aventis dropped 0.33 or 0.55%. The Committee for Medicinal Products for Human Use (CHMP) of the The European Medicines Agency (EMEA) said this afternoon that it is currently reviewing data regarding psychiatric effects of Sanofi-Aventis' Acomplia drug, and expects to announce its conclusions at the end of its July 16-19 meeting.

Across to The Netherlands where in Amsterdam Shares closed slightly higher after a very quiet day led by TomTom and Fortis.

The AEX closed at the day's high, up 2.19 points or 0.40% at 548.21, after opening at 547.35 and reaching a low of 543.85.

Fortis led the AEX, advancing rapidly in late trade and ending 1.64% up at 31.53, after the bank said it will hold an EGM on August 6 to vote on its planned takeover of ABN Amro and the capital increase required.

TomTom rose 1.42% at 37.93 after a price target upgrade to 45 Eur from 40 from Goldman Sachs. The brokerage reiterated its 'conviction buy' rating.

A few shares saw some volume, namely Royal Dutch Shell, putting on 1.27% to 30.19, and ING, 0.92% higher at 32.79 after the bank agreed to sell its Belgian Broker and Employee Benefits insurance business to P&V Verzekeringen for 750 mln Eur, while ABN Amro went down 0.44% to 34.05 following Fortis' late afternoon news and Ahold lost 1.17% to 9.33, amid news the Polish competition authorities gave a conditional approval for Carrefour's 375 mln Eur acquisition of Ahold Polska.

Among other oils, SBM Offshore added 0.92% at 28.30 and midcapper Fugro was up 0.58% to 47.05.

Other gainers on the AEX included TNT, 0.94% higher to 33.43, Reed Elsevier, lifting 1.22% to 14.14 and Numico, up 1.16% to 38.53.

Aalberts led AMX gainers, putting on 3.40% to 20.35, with USG People following suit, rising 1.96% to 34.90.

Vopak went 1.15% higher to 42.20 after the company said it will expand its Teesside terminal at Seal Sands in the UK to store and handle bio-ethanol on behalf of Ensus Limited.

Among local issues, Draka Holding outperformed the market, soaring 10.67% to 37.74 Eur after it said in a trading update that it expects its operating result and net profit to double in the first half year, and after an upgrade to 'buy' at Rabo Securities.

Unibail-Rodamco, set to be de-listed in Amsterdam some time after July 10, led AEX decliners, sliding 2.48% to 189.67 Eur.

Hagemeyer fell 0.78% to 3.83.

DSM was off 0.68% at 36.55 after Petercam reiterated its 'hold' rating but upped its price target to 37.70 Eur from 36.

In Belgium Brussels Shares closed higher, boosted by Wall Street gains, with holding group Nationale a Portefeuille (CNP) and speciality materials group Umicore heading the blue-chips.

At the close, the Bel 20 was up 29.20 points or 0.63% at 4,639.40.

CNP was up 1.57 Eur or 3.20% at 53.48 Eur and Umicore was up 4.06 Eur or 2.58% at 161.27 Eur.

For the heavyweight financials, Fortis was up 0.51 Eur or 1.65% at 31.51 Eur, KBC Group rose 1.10 Eur or 1.11% to 100.02 Eur and Dexia fell 0.04 Eur or 0.17% to 23.21 Eur.

Fortis said it will hold an EGM on August 6 to vote on its planned takeover of ABN Amro and the capital increase required to finance its share of the bid for the Dutch bank.

Fortis -- together with Royal Bank of Scotland and Banco Santander Central Hispano -- intends to launch a public offer for 100% of the issued and outstanding share capital of ABN Amro.

Hagemeyer said it has refinanced its existing senior credit facility with a bank consortium consisting of ABN Amro, ING Bank, Rabobank, Fortis and NIBC.

Ackermans & van Haaren was up 0.83 Eur or 1.17% at 71.75 Eur. The investment group's target price was increased to 86.0 Eur from 80.0 at ING.

Suez was up 0.27 Eur or 0.64% at 42.47 Eur. The French government is expected to make an announcement on the planned merger between the utility and Gaz de France in mid-July rather than next week, as press reports had suggested, with analysts voicing concerns about the relative valuation of the two groups.

In terms of timing, analysts stress the numerous uncertainties, from trade union resistance to Suez shareholders disagreeing over the special dividend.

Sociedad General de Aguas de Barcelona chairman Jordi Mercader said that the joint bid by Catalan savings bank La Caixa and Suez for the remaining stake in the company they do not already own is 'good news'.

Separately, JER Partners, a unit of JER Europe Fund III, has acquired Suez-Tractebel's 30.53% stake in real estate group Compagnie Immobiliere de la Belgique, the Belgian real estate company said.

In addition, at a special Belgian government meeting yesterday, socialists from both sides of the linguistic divide joined forces against Suez unit Electrabel, calling for a new law to cap gas prices after the utility announced an increase in gas charges two weeks ago, Le Soir reports.

Bekaert was flat at 108.85 Eur. The steel cord and wire manufacturer's target price was set at 122.0 Eur at Petercam.

For the fallers, discount supermarket group Colruyt was down 3.51 Eur or 2.21% at 154.99 Eur and pharmaceutical group UCB was down 0.65 Eur or 1.46% at 43.85 Eur.

Brewer InBev was down 0.13 Eur or 0.22% at 58.83 Eur and supermarket group Delhaize fell 0.09 Eur or 0.12% to 72.85 Eur.

Zurich saw Swiss Share prices close markedly higher across the board, tracking other pan-European indices and Wall Street gains with Swatch, Lonza and Syngenta in the lead and gains in heavyweights Roche and Nestle lifting the SMI.

At the close, the Swiss Market Index was up 70.45 points higher at 9,209.36, and the Swiss Performance Index was up 55.32 points at 7,514.07.

The Euro eased slightly against the Swiss franc, to 1.6545 SFr, as did the Dollar, to 1.2249 SFr.

Swiss shares swung into positive territory tracking US gains following a solid bag of US data including consumer spending which rose by 0.5% for the second consecutive time in May, and the University of Michigan's final consumer sentiment index which rose to 85.3 in June, exceeding an expected 84.8.

The top gainer here was Swatch, up 9.75 SFr or 2.9% at 349 SFr on the back of a Deutsche Bank upgrade to 'buy' from 'hold' with a new target price of 387 SFr, with the broker citing strong trends in the watch and production units.

Deutsche Bank also raised Swatch's estimated earnings per share for 2007-2008 by 2.6% to reflect the gains in market share the group has made.

Rival luxury goods group Richemont swung into positive territory and ended 0.5 SFr higher at 73.5 SFr.

Lonza was also a notable gainer, up 2.6 SFr or 2.4% at 112.6, on a rebound after which reaching a three-month low against the SMI yesterday.

Syngenta extended yesterday's gains, adding 4.3 SFr or 1.8% at 239.2 SFr.

Insurer Swiss Life gained 4 SFr or 1.3% at 324 SFr. Peer Swiss Re was up 0.70 SFr at 87.35 SFr after saying earlier today it has launched a series of catastrophe bond performance indices designed to increase the transparency of cat bond returns and to improve interest in the secondary market.

Zurich Financial was 1.25 SFr higher at 379.25 SFr.

Among banks, Julius Baer rose 0.95 SFr or 1.1% at 87.9 SFr as it continued recovering ground lost after UBS sold 15.2% of its stake on the open market last Friday.

Other bank stocks underperformed slightly but still managed to swing into positive territory with UBS up 0.3 SFr at 73.6 SFr, and Credit Suisse up 0.55 SFr at 87.35.

The Swiss bank said in total, 390,000 shares were placed at a price of 1,150 SFr and that the real estate fund's total capitalisation stands at 1.9 bln SFr.

Nestle gained 4.5 SFr at 466 SFr. Late this afternoon, the European Commission said it has the food and drink maker's proposed acquisition of Novartis AG's medical nutrition business, subject to conditions.

In order to remove competition concerns, the parties agreed to divest the entire healthcare nutrition business of Novartis in France, and the entire healthcare nutrition business of Nestle in Spain.

Among pharmaceuticals, Novartis was up 0.25 SFr at 69 SFr while Roche gained 2.7 SFr or 1.3% at 217.4, again outperforming its peer.

The only stocks in the red were Swisscom and Synthes, down 1 SFr at 418.75 and down 0.3 SFr at 146.9 respectively.

Outside the SMI, shares in Speedel gained 3.50 SFr or 1.2% at 182 SFr after Deutsche Bank called the Swiss biopharmaceutical company's blood pressure drug Tekturna the 'tip of the iceberg' and raised its target price to 215 SFr from 190.

Meanwhile, shares in mid-cap biopharmaceutical company Newron jumped 3 SFr or 4.6% to 68 SFr after it announced it has received US FDA approval for an investigational new drug application (IND) to conduct clinical trials with ralfinamide for treatment of chronic pain.

Down South now where in Athens Greek shares closed higher and at their session high, led up by Marfin Popular Bank (MPB) and Cosmote.

The ASE general index grew 0.9% to 4,843.7 and blue chips rose 0.8% to 2,578. Mid caps ended 0.7% higher at 6,305.7 and small caps closed flat at 1,166.3.

Advancers outnumbered decliners 136 to 125, while 53 were unchanged on soaring trading volume of roughly 1.69 bln Eur. Volume was skewed higher by numerous block trades adding up to 1.1 bln Eur from the state's recent placement of a 10.7% stake in Hellenic Telecomms (OTE) which took place at the top end of the range at 21.4 Eur per share.

Marfin Popular Bank (MPB) led blue chip gainers and grew 2.8% to 8.78 Eur after HSBC said it has raised its target price to 9.4 Eur per share from 8.3 Eur and has maintained the rating at 'neutral'.

Mobile operator Cosmote ended 2.6% higher at 22.88 Eur and its parent group OTE gained 0.4% to 22.9 Eur on the positive telecoms due to the state's placement.

Greek Postal Savings Bank gained 2.1% to 17.3 Eur, lifted by market speculation that the state may also proceed with a much anticipated placement of its shares in the bank, following its placement of OTE.

National Bank of Greece rose 1.3% to 42.4 Eur. Its repeat AGM, which was held yesterday, approved an 8-year stock option plan for up to 12 mln shares.

Betting technology Intralot shed 0.7% to 23.82 Eur. Unconfirmed press reports said that its Turkish unit Inteltek may face new litigation challenges in Turkey and added that its betting management fee was cut from 12% to 7% of sales.

Construction and energy holding company Gek fell 3.1% to 12.2 Eur and its construction unit Terna was 1.5% lower at 12.72 Eur as they both trade ex-dividend for the first day.

Home furniture and sporting goods retailer Fourlis rose 1.5% to 21.76 Eur after it had its target price increased to 24.2 Eur from 17 Eur at broker Piraeus Securities, citing medium term prospects from its local IKEA franchise.

Defence and technology holding company Intracom Holdings lost 1% to 3.94 Eur after saying at its AGM that it expects to book a net loss of 7 mln Eur in 2007.

Metals holding company Viohalco led blue chip decliners and dropped 2.8% to 11.5 Eur as it traded ex-dividend.

Neighbours Italy saw Milan share prices close higher, supported by yesterday's comments from the FOMC on continued US economic growth and the similar message from subsequent US economic data Friday afternoon.

The Mibtel index was up 0.54% to 32,886 points and the S&P/Mib rose 0.60% to 41,954. Volume traded was an estimated 4.742 bln Eur.

Among gainers was Lottomatica, up 1.37% to 29.51 Eur, bouncing back after yesterday's 4% fall on a probe and 4 bln Eur penalty threat over service levels at its video poker and slot machine network.

Brokers are mostly dismissing the likelihood of Lottomatica suffering any penalties, with one saying the 4 bln Eur threat is 'absurd' and that the government needs gaming to supply its revenues.

Citigroup said it does not see the probe as a major issue for Lottomatica and noted how CEO Lorenzo Pellicioli has bought 2 mln of the company's shares. Citi left unchanged its 'buy' rating and 33.68 Eur price target.

Alitalia was another gainer, up 1.60% to 0.8175, after reports Air France may enter the privatisation bidding. Air France denied the report. One broker said bidders won't offer more than 0.40-0.50 Eur per share.

Autogrill rose 1.76% to 15.69 and Finmeccanica was up 1.56% to 22.83.

Banks were mixed. BPVN gained 1.67% to 21.34 and Popolare Italiana up 2.45% to 11.42 on their last day's trading before merging. Dresdner Kleinwort said a recent sell off of BPVN has been overdone.

Unicredito added 0.15% to 6.63. Dresdner said recent weakness on the bank after it announced a merger with Capitalia reinforces its 'buy' recommendation on the stock, with a target price of 9.0 Eur.

Capitalia added 0.42% to 7.37.

BPM was up 1.26% to 11.32 on continued reaction to dropping its merger plan with BPER earlier in the week.

Exane BNP Paribas in a note upgrading its BPM rating to 'neutral' with an unchanged price target of 13 Eur, said BPM is not expensive but management does not have an alternative merger option.

Unipol fell 0.93% to 2.67 on uncertainty over its tie-up possibilities.

In the energy sector, Eni added 1.28% to 26.90. UBS raised its price target to 30 Eur, from 28, after its recent acquisition spree.

Media was lower after recent gains. Seat PG fell 0.67% to 0.4445 and Mondadori was down 0.62% to 7.25.

Impregilo lost 1.06% to 5.715 after yesterday's sharp drop on a 750 mln Eur sequestration order. One broker said the sequestration is fully priced into the stock and poor sentiment can push it lower.

Rounding out the Med'  this week we go to Spain where in Madrid Share prices closed at session highs, rebounding from a mostly negative session amid better-than-expected US economic data, with Gamesa leading gains, while Cintra remained under pressure.

The IBEX-35 index closed up 72.1 points at 14,892.0, after trading in a range of 14,712-14,892, on turnover of 8.3 bln Eur.

Gamesa led the gainers, rising 0.49 Eur to 27.00 after Lehman Brothers initiated coverage with 'overweight', and target of 33 Eur, following the broker's trip to the American Wind Energy conference.

Metrovacesa also closed strong, up 1.90 or 2.37% to 82.00. Metrovacesa will be replaced by BME on the IBEX-35 index as of Monday.

BME slipped 0.06 to 16.81.

Cintra fell 0.07 to 11.80, extending losses after it lost out to NTTA for the Texas SH-121 toll motorway concession contract.

Amongst heavyweights, Telefonica rose 0.08 to 16.54, BBVA gained 0.05 to 18.20, while Santander was flat at 13.69.

Sacyr reversed earlier losses, rising 0.22 to 35.73, after the CEO Luis del Rivero insisted that the constructor has the financial muscle to pay for Eiffage.

Other main builders were on offer, with Acciona off 2.10 at 202.30, on profit taking after its outperformance yesterday and FCC 0.75 lower at 66.95.

Iberia dipped 0.05 to 3.70, after its board meeting yesterday failed to provide any fresh newsflow on the bid situation surrounding the carrier.

Utilities were mixed, with Union Fenosa adding 0.69 to 39.65, Endesa rose 0.04 to 40.21 and Iberdrola up 0.61 at 41.53, while Gas Natural slipped 0.02 to 45.13.

We now move into Scandinavia and starting with Norway where Oslo share prices closed higher, led up by Fast Search & Transfer on orders and positive broker comments, and by energy-related stocks.

The OSEBX Benchmark index closed 4.55 points higher at 508.28 and the OSEAX All Share index rose 6.70 points to 586.88.

Total turnover amounted to 12.72 bln NKr.

Fast Search & Transfer closed 1.1 NKr higher at 14.5 after the Norwegian IT firm encouraged investors with its fourth new contract in little over a week.

DnB NOR Markets has a 'buy' on the stock with a 23 NKr target, and First Securities has a 25 NKr target and a 'buy', dealers said.

Eltek shed 1.1 to 48.5. Its wholly-owned subsidiary, Nera Networks, has won new orders in Brazil and Pakistan worth a combined 16.7 mln usd.

Tandberg fell 4 to 132.75 and Telenor shed 0.25 to 115.75.

Energy-related stocks strengthened as oil futures spiked above 70 usd a barrel on the back of a government report that showed US gasoline inventories dropped unexpectedly as the summer driving season neared its peak, dealers said.

The high oil prices have also led to renewed interest in stocks in the alternative energy sector, they added.

Norsk Hydro was up 3.5 at 228. The group has formed a joint venture with Belgium's Umicore aimed at producing silicon for use in the production of solar cells.

Norsk Hydro has also extended a primary aluminium production agreement with Germany's Trimet after an initial start-up deal. Under the new contract, Hydro said it will receive about 130,000 tonnes of primary aluminium a year 'in 2008 and subsequent years'. No financial details were given.

Statoil rose 4 to 183.5. It is to boost the recovery of oil from its Snorre field in the North Sea to 55% from 45%, or by an extra 66 mln barrels, by investing 1.4 bln NKr in new technology and equipment.

DNO added 0.1 to 12.39. The Kurdistan Regional Government (KRG) today published the final draft of the Kurdistan Region Petroleum Law, which will be put before the Kurdistan National Assembly (parliament) for approval. The natural resources ministry said it will organise conferences soon in Erbil, London and maybe in Houston to clarify the tendering process.

PA Resources rose 1.25 to 60.5. The group said the drilling of its latest well in block H in Equatorial Guinea has been postponed due to a dispute with the operator, Pioneer Natural Resources.

Petroleum Geo-Services shed 2.25 to 147.25, Seadrill fell 0.25 to 127.25 and Subsea 7 was 1.5 lower at 126.5, while Frontline was up 3.5 at 273.5, Prosafe rose 2 to 94.5 and Stolt-Nielsen added 5.5 to 196.5.

Yara International was unchanged at 178, after the stock received a boost from two bullish broker reports ahead of the chemicals group's second quarter results next month.

In Copenhagen Denmark 's Share prices closed marginally higher, led up by Novozymes on news of an agreement to exploit Kenya's rare microbes, and by Novo Nordisk, but other than that the market was extraordinarily quiet with many market players locking down their portfolios for the summer holiday.

The OMXC20 index closed 5.07 points higher at 483.69 and the OMXCB Benchmark index added 5.59 points to 468.03.

The OMXC All Share index closed 4.95 points higher at 476.08 on turnover of 4.55 bln DKr.

Into Finland now where the Helsinki market was slightly more active but still Shares closed little changed, with Kemira among the best blue chip performers following positive comment by a local broker.

The OMX Helsinki 25 index finished 0.11% lower at 3,249.31, and down 1.5% over the week. The OMX Helsinki ended the day up 0.01% at 11,346.87.

Bullish comment from Helsinki brokerage FIM provided support to Kemira, up 2.77% to 17.06 Eur. In a note to clients FIM said it expects organic growth at the world's biggest producer of water treatment chemicals to accelerate in the next few years. It reiterated its 'accumulate' rating with a 12 month target price of 19 Eur, but said it is 'confident' the shares could be worth 30 Eur in the medium-run.

It was a mixed session on the leaderboard, with gains for UPM-Kymmene up 0.49% to 18.30 Eur and Nokian Tyres -- 1.2% higher at 26.02 Eur-- offset by falls for Stora Enso down 1.55% to 13.98 Eur and Sampo 0.88% weaker at 21.36 Eur.

Nokia, the most traded share, edged up 0.05% to 20.81 Eur. Meanwhile, Amer Sports moved 1.84% higher to 18.31 Eur, helped by data indicating that consumer spending remains healthy in the US, a key market for the sporting goods manufacturer.

Corporate news was dominated by the mid and small caps. Fiskars rose 1.99% to 12.79 as investors welcomed news it has acquired Iittala Group, the maker of designer homewares, for 230 mln Eur.

The deal, which gives Fiskar's control of a fast-growing Finnish and international retail network, will even out seasonal fluctuations in the company's sales and profits, and be accretive to EPS in 2008, it said.

Iittala had planned to float on the stock market in March, but cancelled the IPO at the last minute.

Kesla was the bourse's star performer, climbing 8.27% to 13.49 Eur, after revising up its sales and profit guidance, while Suomen Terveystalo, a newcomer to the stock market, gained 6.61% to 2.58 Eur.

Terveystalo said Friday it has agreed to buy Finland's Medivire Tyoterveyspalvelut (TPP), an occupational healthcare specialist, for 127 mln Eur.

We close out Scandinavia and Europe this week by going to Stockholm where Swedish shares closed slightly lower on profit-taking, with specialty steel producer SSAB however posting strong gains for the second day running.

The OMX Stockholm index closed down 0.09% at 410.19 points, while the OMX Stockholm 30 index ended 0.24% lower at 1,254.93 points. Turnover amounted to 21.47 bln SKr.

The main sector movers were materials, which closed up 0.84%; energy, up 1.98%; and telecommunication services, 1.04% lower.

The major movers within these sectors included SSAB A, up 3.86% at 282 SKr; Lundin Petroleum, up 2.62% at 68.25; and Tele2 B, down 1.75% at 112.30.

Supporting demand for SSAB is bullishness about the firm's prospects, M&A speculation, and the fact that from Monday it will replace Stora Enso in the OMXS30-index.

Tele2 said it expects a negative one-time effect of approximately 600 mln SKr in the second quarter on its results from the earlier announced divestments of Alpha Telecom and C3 to Italy's Eutelia.

Tele2 previously estimated the negative impact of the sales at 300-400 mln SKr.

Skanska B closed down 0.51% at 147.50, although the construction company said it has won two construction projects in the US worth a total of 1.175 bln SKr, which will both be included in its second-quarter order bookings.

Small cap Swedish biotech company Karo Bio closed down 23.26% at 13.20, after the company said the development of its KB5359 treatment for dyslipidemia will be delayed following the discovery of toxicity issues.

Dyslipidemia is a disruption in the amount of lipids in the blood.

UK Market - Property stocks came under pressure on Friday after a leading broker warned clients that now was not the time to venture back into the sector.

Real estate companies crowded the FTSE 100 biggest fallers list after Morgan Stanley said the factors that had caused the sector to fall 17% in the year to date – primarily rising interest rates and bond yields – had some way to run.

"Experience shows that the property sector, rarely, if ever, stops at ‘fair value' either on the way up or on the way down,” said Morgan Stanley.

With a cautious report from HSBC adding to the negative sentiment, Liberty International fell 2.4% to £11.45, while Segro lost 2% to 625p, British Land fell 1.6% to £13.40 and Hammerson slipped 1.8% to £14.34.

However, the picture in the wider market was rather brighter. Lifted by an unexpectedly strong opening on Wall Street, the FTSE 100 bounced back from early weakness to close 36.6 points, or 0.6%, higher at 6,607.9.

Elsewhere, the FTSE 250 improved 8.4 points, or 0.1%, to 11,527.6.

Over the week, the blue chip index gained 40.5 points, or 0.6% while the mid-cap index lost 61.5 points, or 0.5%.

During the second quarter the FTSE 100 rose 2.5%, while the FTSE 250 fell 3.4%. However, both indices remain in positive territory for the year to data – the FTSE 100 is up 6.2% and the FTSE 250 ahead by 3.1%.

The best performing FTSE 100 stock in the second quarter was Reuters with a rise of 29.6%. The biggest faller was Northern Rock, down 19.4%.

Yet it was Northern Rock, which fell 12% on Wednesday following a shock profits warning, that the led market higher on Friday.

Its shares gained 4.7% to 868p helped by upgrades from Goldman Sachs and Cazenove. There was also talk that the mortgage lender could be a take-over target for ING, the Belgo-Dutch bank.

However, not everyone was convinced by that argument. This is because in the event of a takeover the Northern Rock charitable trust is entitled to new shares equivalent to 18% of the company.

Remaining on the speculative tack, Reed Elsevier, the Anglo Dutch media company, rose 2% to 646½p on talk it could be a target for a leveraged buy-out.

Similar speculation helped Home Retail Group add 2.3% to 459p.

Royal Dutch Shell enjoyed further gains. Up 2.6% on Thursday after Morgan Stanley said the company was undervalued by £60bn, shares in the energy group gained a further 1.1% to £20.83 thanks to a rising crude price and positive comments from Credit Suisse.

Reiterating its £22 target price, the broker said there could be $25bn (£12.5bn) of disposals in the pipeline as the company continues its restructuring programme.

In the same sector, BG Group improved 1.1% to 821½p amid wild talk of a 950p a share bid approach from Gazprom.

Bullish comments from the telecommunications group's chief executive sent BT Group 1.1% higher to 332½p. Ben VerwaaYen told a newswire: "We are absolutely confident that we will do better than most people think.”

Among the mid-caps, CSR, the wireless chip designer, gained 3% to 783½p on further talk that its technology is embedded in Apple's iPhone,.

Broker Dresdner Kleinwort said it should be clear by Sunday which chip providers are inside the new smart phone. Software company Micro Focus added 4.3% to 261¾p as Cazenove upgraded to "outperform” in the wake of Thursday's annual figures.

Japan & Asia Pacific - Asian markets ended mixed on the last session of the week. Weaker Yen, rise in Japanese household spending in May, favorable unemployment data and stable US interest rates all helped the Japanese market have strong gains, while the Hong Kong market fell on profit taking. The Australian market rose on gains by mining stocks. Chinese shares plunged on worries of more government measures.

Japan ese stocks climbed, sending the Topix index to its best performance in almost eight weeks. Exporters led the advance after the Federal Reserve said the housing slowdown won't keep the US economy from expanding and the Yen weakened.

Toyota Motor Corp. advanced to a three-month high, while Sony Corp. gained for the first time in five days.

Shares also rose after reports showed Japan's household spending increased for a fifth month in May and the jobless rate held at a nine-year low. Seven & I Holdings Co. advanced after the Nikkei newspaper said the company will probably show a 6% increase in operating profit in the latest quarter.

The Nikkei 225 Stock Average gained 206.09, or 1.2%, to 18,138.36 at the close of trading in Tokyo. The Topix index jumped 23.76, or 1.4%, to 1774.88, its best performance since May 7. Automotive-related stocks and electronics shares accounted for about a third of the broad benchmark's advance.

Toyota, which had more than 60% of its sales outside Japan last fiscal year, jumped 180 Yen, or 2.4%, to 7,800, reaching the highest since March 26. Sony, the maker of the PlayStation 3 game console, advanced 110 Yen, or 1.8%, to 6,330.

Japan's households increased spending 0.4% in May, the fifth straight monthly gain, the statistics bureau said. The jobless rate held at a nine-year low, suggesting consumer spending will help extend the economy's longest postwar expansion.

Seven & I, the nation's largest retailer by sales, jumped 100 Yen, or 2.9%, to 3,520. The company will probably say next month that operating profit, or sales minus the cost of goods sold and administrative expenses, rose 6% to 71 billion Yen ($576 million) in the three months ended May, the Nikkei reported.

Other domestic demand-related companies also gained. ABC- Mart Inc., which operates a nationwide shoe chain, surged 170 Yen, or 6.4%, to 2,820. East Japan Railway Co., the country's largest train operator, climbed 23,000 Yen, or 2.5%, to 950,000.

Hong Kong blue chips dropped 0.8% and China plays fell 0.4% on Friday, as a tumble in mainland bourses dragged down China Life and other Chinese financial plays.

But Yanzhou Coal Mining Co. Ltd. rallied to an all-time high after agreeing to sell thermal coal at prices that were 15% higher than last year.

The market retreated from a firm opening as buying interest waned on the approach of a three-day weekend.

The benchmark Hang Seng Index closed down 165.49 points at 21,772.73, for a monthly rise of 5.5%, its biggest since Nov. 2004. It gained 9% over the first six months of the year.

The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, finished down 48.88 points at 12,001.12. It posted gains of 11.8% for the month, the highest since December, and 16% for the year's first-half.

Mainboard turnover of HK$68.9 billion (US$8.8 billion) was down sharply from Thursday's HK$80.5 billion, the eighth-largest ever.

Yanzhou Coal surged 8% to HK$11.94 after agreeing to sell 200,000 tonnes of thermal coal to Japanese utilities at $75 per tonne free on board, a 15% rise on 2006 prices but a fraction of the volume sold last year, a source familiar with the deal said on Thursday. (For details, click on [ID:nT322055]).

Peer China Shenhua jumped 3% to HK$27.3 in heavy trade.

Hong Kong Exchanges and Clearing advanced 1.5% to HK$110.50, having earlier tapped new highs, as the total volume traded on the city's bourse this month set a record.

Among mainland financial stocks, China Life finished down nearly 3% to HK$28.10. Bank of China fell 1% to HK$3.88.

Jiangxi Copper Co. Ltd. sagged 2.4% to HK$13.14 in heavy trade after Goldman Sachs downgraded China's top producer of the red metal to neutral from buy on valuation and processing business risk.

Chinese stocks fell Friday after regulators carried out a slew of market cooling measures amid expectations more were on the way.

The benchmark Shanghai Composite Index slid 2.4% at 3,820.70. That followed a 4% slump on Thursday. The Shenzhen Composite Index of China's second, smaller market fell 3.1% to 1,077.92.

China's legislature on Friday approved a proposal to cut or suspend a 20% tax on interest income, a move aimed at diverting funds from the booming stock market.

Meanwhile, China's banking regulator issued a statement urging small- and medium-sized banks to prevent clients from illegally investing loans in stocks and real estate.

Among the actively traded companies Friday, insurance-to-port conglomerate Orient Group fell by the daily 10% limit to 30.86 Yuan, China Life Insurance fell 4% to 41.11 Yuan and Shanghai International Airport fell 4.3% to 38.01 Yuan.

China's CSI 300 dropped 2.5% on concern signs of accelerating economic growth will prompt the government to raise interest rates. It lost 4.2% in June, its first monthly loss since July. For the week, it fell 7.1%, the biggest weekly decline since February and the region's worst performer.

Citic Securities Co., China's biggest publicly traded brokerage, fell 3.1% to 52.97 Yuan. China Vanke Co., the country's largest listed real-estate developer, lost 1.4% to 19.12 Yuan.

Meanwhile, South Korea reported a seasonally adjusted current account surplus of US$147 million in May, compared to a revised US$383 million deficit in April. However, the Bank of Korea was pessimistic about the outlook, as a stronger Yen tends to send more Koreans abroad.

The benchmark Korea Composite Stock Price Index shed 8.15 points or 0.5% to close at 1,743.60.

Hyundai Motor and Kia Motor declined 1.5% and 1.4%, respectively. Workers of union belonging to the companies participated in the strike for the second day against the free trade agreement with the US

Samsung Heavy Industries lost 1.3% even after the company said it had got a contract worth 551.4 billion won or US$595.6 million to build a drillship for a company in the Americas.

Hyundai Steel fell 1.5% and BNG Steel nosedived 14.9%. POSCO climbed 1.5% after the company revealed that it had held talks with Arcelor Mittal on possible cooperation. Chinese shares ended with sharp losses, as the market remained stuck in fears of policy measures by the government. China's plan to issue US$200 billion yuan bonds to fund its new overseas investment agency got approved by the parliament. The parliament also approved the government's decision to cut or abolish the 20% tax on interest from bank deposits. Both measures are viewed as moves to divert funds from the markets.

Thailand 's shares gained 0.9% at 777.68, their highest closing level since May last year, led by banks and select energy stocks.

Indonesian shares fell 0.6% at 2,112.851, as investors stayed on the sidelines amid a lack of fresh leads and as worries that the Federal Reserve will increase interest rates spurred selling.

Malaysian shares shed 0.5% to close at 1,350.72.

Philippine shares climbed as investors, encouraged by a Wall Street rally, bought Philippine Long Distance Telephone Co. and other heavyweights. The benchmark 30-company Philippine Stock Exchange Index gained 57.79 points, or 1.6%, at 3,645.00, after plunging 1.9% Wednesday.

Singaporean shares closed higher for the first time in a week, powered by bargain-hunting after several days of declines and Wall Street's overnight gains. The Straits Times Index closed up 32.73 points, or 0.93%, at 3,538.23.

In India The benchmark Sensex remained bullish and added 146 points on the Bombay Stock Exchange on Friday on brisk buying by funds in cement, banking and capital goods segments.

The Sensex, which had recorded a gain of 73.50 points in Thursday's trade, added another 145.94 points to close at 14,650.51 as heavy-weight stocks notched up fresh ground.

The key index touched the day's high of 14,663.25 and a low of 14,574.45 points during the day.

Similarly, the wide-based National Stock Exchange index Nifty recorded a gain of 36.30 points at 4318.30, after scaling an intra-day high of 4321.35 and low of 4280.95 points.

After a positive start, the Australian stock market fell slightly by noon on Friday, with a subdued Wall St and the end of financial year weighing down stocks.

The S&P/ASX200 index was down 2.1 points at 6263.5, while the all-ordinaries was unchanged at 6297.4.

On the Sydney Futures Exchange, the September share price index contract was also steady at 6276 on a volume of 8,462 contracts.

Better commodities prices overnight lifted miners, with BHP Billiton gaining 25c to $A35.14 and Rio Tinto up 91c to $A99.27.

Building materials company CSR says it will buy glass maker Pilkington Australasia for $A690 million, with an eye on the growing architectural glass market. Pilkington is Australasia's only manufacturer of architectural glass. CSR dropped 1c to $A3.46.

The main banks were generally worse off. ANZ lost 5c to $A28.96, National Australia Bank was down 8c to $A40.84 and Commonwealth Bank was down 22c to $A55.15. However, Westpac bucked the trend, gaining 21c to $A25.63.

Energy stocks were mixed, with Woodside Petroleum up 30c to $A46.05 and Santos steady at $A14. Oil Search fell 2c to $A4.20.

Toll Holdings moved closer to full ownership of Toll New Zealand Ltd agreeing to buy a 10% stake held by United States-based fund manager Third Avenue management. Toll Holdings currently owns 84.2% of Toll NZ. Toll were down 18c to $A14.30.

The top-traded stock by volume was BHP Billiton, with 70.63 million shares worth $A1.43 billion changing hands.

Turnover was 1.31 billion shares worth $A8.36 billion, with 591 stocks down, 616 up and 371 unchanged.

In New Zealand The NZX50 performed strongly on Friday, buoyed by a survey showing a rebound in business confidence.

The index finished up 44 points, or 1%, to 4234 on turnover of $187 million.

Telecom was up 11c to $4.59. The Warehouse added 4c to $6.07 after Foodstuffs lodged an appeal with the High Court contesting a Commerce Commission decision to block a takeover bid.

Michael Hill was the day's big mover, up 30c to $10.10, while Fletcher Building also closed on a high, up 5c to $12.35.

Toll New Zealand shares closed yesterday at $2.80 and rose 17c after coming off a trading halt on Friday morning to close at $2.97, which is still short of the offer price of $3 for the company's remaining shares.

Commodities - Commodity markets ended a difficult week on a high as oil prices surged higher, grains prices rose and gains for copper provided support for base metals.

Much of the commodities complex came under pressure early in the week as risk appetite weakened in the face of rising bond yields.

However, oil prices led a rally, bouncing back on Wednesday after an unexpected fall in US petrol and heating oil stocks. Crude prices extended their gains as traders anticipated significant tightening in global energy supply and demand in the third quarter.

ICE July Brent hit $71.60 a barrel before easing back to trade 66 cents higher at $71.18 a barrel on Friday, unchanged over the week, while Nymex August West Texas Intermediate rose 83 cents to $70.40 a barrel, up 1.9% this week.

Approaching peak summer demand for petrol, Nymex July RBOB gasoline rose 1.2 cents to $2.2785 a gallon on Friday, down 0.4% this week. The July contract expired on Friday. August gasoline rose 2 cents to $2.1287.

Concerns about winter heating oil supplies are mounting as stocks stand 40% below last year's levels. Nymex July heating oil gained 1.7 cents at $2.0351 a gallon on Friday, 0.1% lower this week. The July contract expired on Friday. August heating oil increased 1.6 cents to $2.0426.

Grains markets were highly volatile after several major surprises in the US Department of Agriculture's June plantings report.

The USDA said US farmers planted 92.888m acres of corn this year, the most since 1944 and significantly above analysts estimates. CBOT July corn fell 8¼ cents to $3.31 a bushel.

The sharp increase in corn acreage will reduce the soyabean crop. The USDA forecast of 64m acres for soyabeans was significantly below analysts' estimates which ranged between 66m to 69m acres. Soyabean prices soared with the futures contracts for August 2007 through to July 2008 all up by their 50 cent daily trading limit. July soyabeans spiked by 68¾ cents to $8.78½ a bushel as this is a delivery month with no trading limit before easing back to trade 53½ cents higher at $8.63¼.

Wheat prices also rose strongly with July wheat up 15½ cents to $6.24½ a bushel after the USDA reduced its estimate for spring wheat acreage substantially.

The USDA said 2007 spring wheat acreage totalled 13.144m acres, below the consensus forecast of 13.899m acres and 11.8% below last year's 14.899m acres. In Minneapolis, where more spring wheat is traded, the benchmark for the new crop, September wheat rose 20 cents to $6.41 a bushel.

Copper rose 1.6% to $7,560 a tonne this week on strike threats in Latin America. Lead hit a record $2,730 on Tuesday, gaining 4.6% to $2,658 a tonne over the week.

Currencies - The Yen endured a turbulent ride this week, rallying sharply before resuming its recent downtrend to end the first-half of the year on a weak note.

Fears over the potential fallout of the problems in the US subprime mortgage sector rocked global asset markets in the first half of the week. Analysts said the resulting rise in volatility saw investors trim carry trades, in which the low-yielding Yen is sold to fund the purchase of riskier, higher-yielding assets elsewhere.

The Yen's rise came amid renewed warnings over the risks of the build up of carry trades, which have helped the low-yielding currency fall 3.7% against the Dollar, 5.7% against the Euro and 6% against the Pound so far this year.

Meanwhile, the Yen's falls against the high-yielding Australian and New Zealand Dollars have been even more dramatic, dropping 11.6% and 13.5% respectively in the first half.

The Bank for International Settlements said in its annual report that Yen weakness was "anomalous” and warned that carry trades could unwind quickly if investor perception changed.

Koji Omi, Japan's finance minister, also warned investors should be aware of "one-way currency trading”, echoing warnings on the excessive build-up of carry trades that have followed recent Group of Seven leading industrial nations' meeting.

Analysts said the remarks sparked some speculation that Japanese officials were shifting their stance on the Yen and might start a concerted verbal Yen campaign to halt is depreciation.

Over the first half of the week, the Yen climbed more than 1 per against the Dollar, Euro and Sterling, peaking on Wednesday at Y122.20, Y164.35 and Y244.05 respectively. Meanwhile the Yen rose more sharply against the higher-yielding Australian and New Zealand Dollars, climbing over 2% by Wednesday.

But just as it seemed that the market was poised for a more aggressive unwinding of carry trades, the return of calm to global assets markets combined with weak Japanese data and saw the Yen quickly give up its gains. Both Japanese retail sales and consumer price inflation data came in weaker than expected. Paul Chertkow, head of currency research at Bank of Tokyo-Mitsubishi UFJ, said the data implied the Bank of Japan would be obliged to maintain a cautious approach to raising interest rates.

The Yen fell 0.6% against the New Zealand Dollar to Y95.40 on the week and was flat against the Australian Dollar, Euro and Sterling at Y104.90, Y166.80 and Y247.50 respectively. However, the Yen rose 0.3% to Y123.50 against the Dollar over the week.

The Dollar also fell 0.4% to $1.3510 against the Euro and 0.3% to $2.0050 against the Pound over the week following a sharp fall on Friday.

Prior to Friday's action, the Dollar had traded in a tight range against the Euro and the Pound as investors awaited the Federal Reserve's decision on US interest rates on Thursday.

The South African Rand was bid at 7.04 to the US Dollar from 7.08 when the JSE closed Thursday.

In China, the RMB finished the week at 7.613 against the US Dollar.

China - Chinese regulators are considering suspending or abolishing a 20% tax on bank savings to try to persuade consumers to stop moving cash out of bank deposits into the increasingly heady world of stock market investment.

Rising inflation is badly eroding the value of savings in China, where people tend to save as much as 40% of their income in the absence of a solid social welfare system.

This has helped to fuel a boom in share buying, which has replaced bank saving as the most popular investment option in China and stoked fears of an unsustainable bubble. The country's stock market rose 130% in 2006 and by over 50% already this year, despite some vertigo-inducing corrections that have caused ripples around the world.

China has seen the introduction of record numbers of new share-trading accounts which now add up to over 100 million. A central bank survey last month showed that consumers now prefer shares to deposit accounts.

The regulators hope that changing the tax, first introduced in 1999, would make saving in banks more attractive. JP Morgan economists said removing the tax would be the equivalent of a 60 basis point rate rise for savers.

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Lawmakers approved a measure Friday to let China's government inject $200 billion into a company to invest part of its vast foreign reserves abroad, moving closer to creating one of the world's richest investment funds.

The Finance Ministry will capitalize the new company with foreign currency raised by issuing special bonds under a law approved by the National People's Congress, the official Xinhua News Agency said.

China announced plans in March for the agency, tentatively called the State Investment Co., to make more profitable use of its $1.2 trillion in reserves. They are now kept mostly in US Treasury securities and other safe but low-yielding instruments.

The announcement of the proposed bond measure this week was the first time the government gave an official indication of how large the planned fund will be.

Details of the plan, such as how the Finance Ministry will place the special bonds, haven't been disclosed.

China's reserves, already the world's largest, are growing by billions of Dollars a month as the central bank drains money from the economy through bond sales to reduce pressure for prices to rise.

Officials say they are still working out the new investment company's strategy.

Even before its formal launch, the fund made its first investment in May, committing $3 billion to the initial public stock offering of US investment fund Blackstone Group.

The fund is expected to avoid politically sensitive deals by taking minority stakes in companies rather than pursuing corporate takeovers. The company also is expected to entrust money to other private equity funds or securities firms to invest in foreign stocks and other assets.

Chinese officials say the investment company is modeled in part on Singapore's state-owned Temasek Holdings, which invests in banks, real estate, shipping, energy and other industries in Singapore, India, China, South Korea and elsewhere.

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Growth in China's economy is expected to expand at a rapid rate in 2007, with inflation ticking higher to 3.2%, state media reported Friday, citing the central bank.

The nation's gross domestic product (GDP) should expand 10.8% this year, slightly higher than the 10.7% in 2006, the fourth consecutive year of double-digit growth, according to the bank's research report published in the China Securities Journal.

It said that after the blistering 11.1% growth recorded in the first quarter, the second quarter pace of growth should slip to 10.9% followed by 10.7% and 10.6% in the third and fourth quarters respectively.

"The trend in the high growth of gross domestic product should suggest an adjustment, but the extent of a pull-back is unlikely to be large," the bank said.

Recent inflation pressure was expected to ease in the second half, the report said, but was still above the official target of 3.0%.

The consumer price index, a key measure of inflation, hit a two year high of 3.4% in May.

The People's Bank of China also went on to add that growth in the trade surplus would fall gradually amid faster growth in imports and a decline in exports.

It said this was partially due to cuts or the removal of tax rebates for exports and imposing a tax on energy intensive export products.

China's trade surplus for May hit 22.45 billion Dollars, up nearly 73% from a year earlier and was the second-highest ever behind February's figure of 23.7 billion Dollars.