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Allied Zurich May Face Further Declines Amid Index Removal Talk

Zurich, July 27 -- Allied Zurich Plc, the U.K. parent of Zurich Financial Services AG,
may face further declines amid concern its shares may soon be dropped from the Dow Jones 50 Stoxx Index of Europe companies, analysts said.

Shares in the parent of Europe's fourth-largest insurer have fallen 9 percent since the beginning of July amid speculation that Allied may be dropped from the benchmark index when changes to its member companies are announced August 19.

Inclusion in key stock indexes typically lifts shares as they tend to be bought and held as part of a basket of securities. Conversely, shares dropped from such indexes tend to fall as portfolio managers replace it with another company. Reuters Group Plc, the world's largest financial information provider, tumbled 19 percent in the week following its removal from the DJ Europe 50 last August. The U.K.'s benchmark FT-SE 100 fell 8 percent in the same period.

``Certainly it would be bad news,'' for Allied Zurich shares, said Georg Marti, an analyst at Zuercher Kantonalbank. The shares will ``come under pressure in the short term'' if Allied is removed from the index, he added.

STOXX Limited, the operator of STOXX Indexes, publishes on the first trading day of every month a list of companies for several indexes including the DJ Europe 50. The list indicates possible changes to the index at the annual review, according to STOXX Limited, which was founded by Deutsche Boerse AG, Dow Jones and Company, Paris Bourse SA and Swiss Exchange SWX.

Top 60

Members must maintain a ranking in the top 60 companies in terms of market capitalization in order to remain in the index, and non-members must place in the top 40 in order to be added.

Allied Zurich placed number 68 on the July 1 list.

Changes to the index are calculated according to the market capitalization at the end of July, along with the daily average turnover in euro from the preceding twelve months. The changes will come into effect on September 20.

Analysts said that the company doesn't yet know if its shares will be removed. Thomas Sutter, a Zurich Allied spokesman, said that the company is in contact with STOXX Limited without elaborating.

In the long-term however, Marti said that there's no reason why the stock should continue to decline, even if it is dropped from the index.

``It's a good company, a good story, and has a good earnings perspective,'' Marti said.

Allied shares rose 7 pence, or 1 percent, to 729p ($11.59) on the London Exchange as European financial company shares rose amid optimism about interest rates in Europe.


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