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LONDON (Alliance News) - Defense giants BAE Systems and Rolls-Royce Holdings are among the biggest gainers on the FTSE 100 Wednesday, after the British and Saudi Arabian governments at long last came to a deal over how much more Saudi Arabia should pay for the Eurofighter Typhoon jets the Middle East country bought back in 2007.

Saudi Arabia had ordered 72 of the fighters for GBP4.5 billion, but the costs of the project soon escalated, meaning BAE Systems wanted more. It had warned last year that failure to get an agreement would hit its earnings.

BAE Systems, which builds the jets in a consortium with Airbus and Italy's Finmeccanica, didn't give details of the deal, but said it had met its expectations. The British company reports its 2013 results Thursday.

Rolls-Royce makes the engines for the Thyphoon, and its shares also rallied, coming just days after it warned that it wouldn't grow in 2014 due to the slowdown in defense spending in markets like the US and UK.

The biggest gainer on the blue-chip index Thursday is Sports Direct, after it reported yet another rise in profits and revenues. The UK's largest sports good retailer said gross profit grew by 14.6% in its fiscal third quarter, buoyed by double-digit revenue growth which was fueled by strong growth in retail and online sales. It is confident it will meet full-year earnings expectations.

Marks & Spencer is another stock doing well, after it launched its long-awaited new website, a move it hopes will help turn around its ailing clothes and general merchandise business and catch it up with rivals who were quicker at taking advantage of soaring online sales.

The Royal Bank of Scotland Group has struck a deal to sell some structured retail investor products and equity derivatives businesses to France's BNP Paribas, as the bailed-out UK bank continues to shrink its balance sheet.

The deal is not hugely material to the group's bottom line, but RBS said the deal is expected to transfer risk management of up to GBP15 billion of liabilities over time.

Pets At Home Group has becoming the third retailer so far this year to confirm a planned UK listing, saying it is hoping to raise GBP275 million through an initial public offering which it will use to reduce debt and expand the business.

The group is owned by US-based investment firm Kohlberg Kravis Roberts, which bought the retailer back in 2010 for around GBP955 million. Media speculation has suggested that the business could be valued at up to GBP1.5 billion in the IPO, although Chief Executive Officer Nick Wood Wednesday refused to comment on the valuation or timing of the upcoming IPO.

In economic news, the UK jobless rate unexpectedly rose in December, the first increase in nearly a year, according to data released by the Office for National Statistics. The jobless rate climbed to 7.2% in the December quarter, from 7.1% in the three months to November. The increase was the first since February last year, when the figure was 7.9%. Economists had expected the rate to remain unchanged.

The number of unemployed totaled 2.34 million in the three months to December, down 125,000 from July to September. The figure was lower by 161,000 persons from a year earlier.

The Bank of England's Monetary Policy Committee unanimously decided to leave the key interest rate at 0.50% and quantitative easing at GBP375 billion at their last meeting, the minutes showed.

The committee indicated that even when rates do rise, the new "norm" for rates may well be lower than was perceived before the financial crisis."Even when the economy had returned to normal levels of capacity, and inflation was close to target, the appropriate level of Bank Rate was likely to be materially below the 5% level set on average by the Committee prior to the financial crisis," the minutes say.

In the US, the Federal Resrve has now adopted new regulations on international financial groups that could force some to set aside billions of dollars in capital. The new rules will affect large European banking firms such as Deutsche Bank AG, Credit Suisse Group AG, UBS AG, Barclays PLC and others with operations in the US.

Foreign banking organisations with US non-branch assets of more than USD50 billion will be required to establish an US intermediate holding company over their subsidiaries, the Fed said, with foreign banks expected to also to meet the requirements on capital, debt levels and annual "stress tests."

The new rules had been resisted by the EU.

A report from the Bank of Japan said the country's economy will continue to recover at a moderate pace in the near term, supported by a further improvement in industrial production and external demand. The bank cautioned that growth will be affected a rise in the consumption tax, while emerging market volatility, the European debt crisis and the pace of the U.S recovery also pose risks to growth. "Exports are expected to increase moderately, mainly against the background of the recovery in overseas economies," it said.

Australian Treasurer Joe Hockey will urge G20 finance ministers and central bankers meeting in Sydney this weekend to put economic growth ahead of deficit reduction and set ambitious national targets for output and jobs. Hockey wants a commitment to get global output back to its pace before the global financial crisis hit in 2008, a call he expects to prove less than popular with some finance chiefs.

In political news, Britain is to further tighten benefits for European workers, the Department for Work and Pensions has announced, the latest in a series of measures aimed at cracking down on immigration. From March, immigrants from the European Economic Area will have to prove that they earn around GBP150 pounds a week in order to qualify for "worker" status, which gives them access to better benefits.

A deal to end the stand-off over Tehran's nuclear programme can still be achieved by the middle of this year, according to Iran's Foreign Minister Mohammad Javad Zarif, despite scepticism from some Western powers. The aim is to reach a comprehensive deal that would restrict uranium enrichment and other nuclear activities in Iran for several years. In return, the world powers would lift all sanctions against Tehran.

Thai opposition leader Abhisit Vejjajiva has called on the government to open talks on holding a new election to get the country out of its political deadlock. It comes after anti-government protesters in Bangkok surrounded the temporary office of caretaker Prime Minister Yingluck Shinawatra, the day after a police crackdown left five dead in the capital's centre. Yingluck and her caretaker cabinet were not there, and the building was heavily guarded by soldiers behind barbed wire.

Ukrainian President Viktor Yanukovych has denounced protests in which 25 people were killed as the work of criminals and called for fresh talks with the opposition as an EU campaign to impose sanctions over the unrest gained momentum. Yanukovych defended the crackdown on anti-government protesters, saying the opposition had overstepped its bounds by calling its supporters to arms. He called upon opposition leaders to distance themselves from "radical forces who provoke bloodshed." The president also said further talks were possible.

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FTSE 100: down 0.4% at 6,766.46
FTSE 250: down 0.4% at 16,283.57
AIM ALL-SHARE: flat at 880.33
GBP-USD: 1.5653
EUR-USD: 1.3743
GOLD: USD1,317.80 an ounce
OIL (Brent): USD110.41 a barrel

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KEY UK CORPORATE NEWS:

FTSE 100: ITV has acquired a 51% stake in New York-based television producer DiGa Vision, continuing a recent run of production company acquisitions as it tries to build a portfolio of international content it can show on its channels and sell around the world. Royal Dutch Shell said that it is to sell its interests in three of its operations in the North Sea - the Anasuria, Nelson and Sean assets, confirming the plans in a letter to staff last week, but said that it is still committed to operations in the North Sea. The oil giant has also chosen a USD2.4 billion offer from oil trader Vitol Group as its preferred bid for its downstream Australian assets, The Australian reported Wednesday, citing a person familiar with the offer. Mondi said it is "reasonably certain" that underlying operating profit for the full-year will come in above the EUR574 million reported in 2012. Verizon Communications is to issue approximately 1.274 billion shares of Verizon common stock to shareholders of Vodafone Group as part of the deal to buy the British firm out of Verizon Wireless.

FTSE 250: Ultra Electronics Holdings has acquired US-based specialist sonar provider 3 Phoenix Inc for USD70 million in cash, a deal that it expects to boost its earnings and enhance its relationship with the US Navy. Intu Properties plans to launch GBP110 million additional class A, B and D notes under the Trafford Centre Finance commercial mortgage-backed securities transaction, which it will use to fund future developments. Galliford Try reported an 18% jump in both pretax profit and revenue in the first-half of its financial year, as the recovery in the UK housing market buoyed its housebuilding unit, and said it is targeting a doubling of profits over the next five years. Its construction unit is still struggling, with revenues down.

AIM: Plus500 shares are sharply higher after it said it was confident in delivering "considerable growth" in 2014 and announced a special dividend, as it saw revenue and pretax profit more than double in 2013. Versarien is up after its second largest share holder, former Chairman James Murray-Smith, sold 14,000,000 shares in the company on Monday. Avanti Communications Group is also up on the news that it has signed a three-year technology deal with a Vodafone European company for the provision of Avanti's 3G IP backhaul services. Shares in eServGlobal rose after the company said it has signed a Memorandum of Understanding with BDCOM Online Ltd for a potential mobile financial services joint venture in Bangladesh. At the other end of the market, Altona Energy has dropped, despite reporting that its pretax loss narrowed in the first half of its financial year, after it ended talks about acquiring a Xinjiang Hetian Duwa Industry Ltd coal mine in Xinjiang, China because the ownership title couldn't be proved. Shares in Motive Television have also fallen, after the software supplier said it has conditionally raised GBP775,000, before expenses through a placing of almost 3.9 million shares. Shares in Snacktime have plunged after suitor Uvenco UK Ltd said it had ended talks about potentially buying the drinks and snack vending machines operator.

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AFTERNOON WATCHLIST: US Fed's Lockhart speech, US Fed's Bullard speech, US FOMC Minutes, Japan Exports/Imports
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Thursday's Key UK Corporate Events

Anglo Pacific Group Preliminary Results
Centaur Media Half Year Results
Rathbone Brothers Full Year Results
Centrica Preliminary Results
BAE Systems Full Year Results
Ensco Q4 Results
Rexam Full Year Results
Essentra Full Year Results
Genting Singapore Q4 Results
Go-Ahead Half Year Results
F&C Global Smaller Companies Interim Management Statement
Petra Diamonds Interim Results
Primary Health Properties Full Year Results
Playtech Full Year Results

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Thursday's Key Economic Events

00:00 US FOMC Member Williams speech
01:45 China HSBC Manufacturing PMI Preliminary
07:00 Germany Producer Price Index
07:45 France Consumer Price Index
07:45 France Inflation ex-tobacco
07:58 France Markit Manufacturing PMI Preliminary
07:58 France Markit Services PMI Preliminary
08:28 Germany Markit Manufacturing PMI Preliminary
08:28 Germany Markit Services PMI Preliminary
08:58 EU Markit Manufacturing PMI Preliminary
08:58 EU Markit Services PMI Preliminary
11:00 UK CBI Industrial Trends Survey - Orders
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI Preliminary
15:00 EU Consumer Confidence
15:00 US Philadelphia Fed Manufacturing Survey
15:30 US EIA Crude Oil Stocks change
15:30 US EIA Natural Gas Storage change
23:50 Japan BoJ Monetary Policy Meeting Minutes

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By Alice Attwood; aliceattwood@alliancenews.com; @AliceAtAlliance

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