SG Equities brokerage upgraded Alstom shares to ‘buy’ from ‘sell’ in the light of expectations that EU authorities will clear the rescue which was mounted last year.

Alstom shares were showing a gain of 4.5 percent to EUR 2.05 in Paris trading, while the CAC-40 index fell 14.06 points to 3,619.43 points. However there is concern that the group might have to renegotiate its bank loans.

The gains were fueled by a report by AFX News, the AFP financial news service, that the European Commission would approve the government’s continued financial support for the company, dealers said.

The share rally coincided with South Korea’s launch of its first high-speed railway system, built using technology transferred by Alstom.

The company, which recently completed work on the Queen Mary 2 cruise liner, won an order for two ocean liners earlier this month and has reported growing signs in its order book that customer confidence is returning.

Alstom shares moved higher from the outset after sources close to the case on Monday told AFX that the commission would approve the aid in May after independent consultants had advised the executive that this would be in the interests of competition in the European Union.

A source close to the probe noted the approval was likely because if Alstom collapsed the effect would be to reduce competition in the bloc’s transport and energy industries.

A source in Brussels said Tuesday the decision would probably be announced in early May.

SG Equities said Tuesday in a broker note: “If this report (on the EU Commission approval) turns out to be true, it would be excellent news for Alstom,” SG Equities analysts said.

The brokerage also raised its share price target to EUR 2.60 from EUR 1.80.

But other analysts warned that Alstom’s share price would continue to face volatility given the company’s weak financial position and high debt level.

“There are some expectations for positive news on (the financial) dossier given the launch of the high-speed train in Korea and the EUR 230 million contract awarded (Monday) by EDF,” said another analyst in Paris, referring to state-owned Electricite de France.

“But there are still some doubts about profit margins and the stock remains a risky investment.”

French Industry Minister Nicole Fontaine said earlier she was confident Alstom would win a contract to provide a high-speed train line between Beijing and Shanghai “by the end of the year.”

Alstom shares gained sharply Monday as an upbeat Morgan Stanley note on the company’s 2005 and 2006 outlook outweighed the company’s forecast for a “significant” full-year net loss and concern that it will be forced to renegotiate two loan covenants.

Faced with bankruptcy, Alstom was rescued last September by a EUR 3.2 billion (USD 3.9 billion) package backed by the French state and foreign and domestic banks.

The restructuring plan it drafted calls for the sale of assets worth EUR 3 billion and the elimination between now and 2005 of 7,000 jobs.

Alstom shed 17,000 jobs in 2003 and will eliminate 10 percent of its 60,000-strong workforce by the end of this year.

© AFP

                                         Subject: French news