Tesco trading update sends investors running for cover

BRITAIN’S leading share index fell yesterday as a disappointing trading update from Tesco upset food retailers and tobacco stocks were hit by a broker’s downgrade.

At the close, the FTSE 100 was down 26.84 points, or 0.4 per cent, at 6,023.88, after hitting a 31-month closing peak on Wednesday.

Tesco was the biggest FTSE 100 faller, down 4.3 per cent after the world’s third-biggest retailer missed Christmas sales forecasts.

“Tesco’s figures are proof that bigger is not always best and while it has managed to hold its share of the UK grocery market ... further gains are likely to be limited,” said Manoj Ladwa, a senior trader at ETX Capital.

Weakness in tobacco was a big drag on UK blue chips. Negative broker comment hit both British American Tobacco and Imperial Tobacco, down 3.6 and 1.3 per cent respectively after BofA Merrill Lynch downgraded its ratings for the two cigarette makers to “neutral” from “buy”.

Utilities were also fallers as defensively perceived stocks retreated, with United Utilities down 2.7 per cent.

Miners lost ground, led by Antofagasta down two per cent as copper fell, the metal’s price pausing after two days of gains, as investors worried about demand waning in China as the top metals consumer approaches its New Year holiday.

And energy issues were led down by Royal Dutch Shell, off 0.4 per cent, with traders citing talk that the oil major was guiding analysts lower on its earnings outlook.

Part-nationalised lenders Royal Bank of Scotland and Lloyds Banking Group gained 3.5 per cent and 1.2 per cent respectively as domestic banks bounced back after investor fears over eurozone sovereign debt subsided.

After Portugal’s debt auction on Wednesday, Spain and Italy also successfully sold a combined €9bn (£7.5bn) worth of debt on yesterday, underpinned by hopes that policymakers may soon shore up the region’s fiscal defences.

Among other financials, insurers also saw support with Resolution standing out, ahead 3.7 per cent.

Engineer IMI was the top blue-chip performer, up 4.2 per cent after BofA Merrill Lynch upgraded it to “buy”.

“We have clung on to the 6,000 level but are making fairly heavy weather of it, with two steps forward and one step back,” said David Morrison, market strategist at GFT Global.

“The eurozone debt problems have eased but not gone away, we've got the earnings season to negotiate, and there is some big economic data from the US to come,” he added.

On the domestic economic front, British industrial output grew at its slowest annual pace in four months in November, dragged down by weakness in the oil and gas sector.

The Bank of England kept its key interest rate at a record low 0.5 per cent as expected for the 22nd consecutive month after the latest monetary policy committee meeting.