Tesco helps push FTSE into red

The FTSE 100 fell sharply on Tuesday as grocer Tesco provided further evidence of a retail spending slowdown.

Europe's largest supermarket group lost 2.9 per cent to 407¾p after sales came in short of expectations. While like-for-like sales rose 3.1 per cent in the six weeks to January 5, this was below analysts' forecasts.

"Tesco is a growth company and a slowdown in growth will perturb the market," said James Anstead at Citigroup.

Rival J Sainsbury, by contrast, was the biggest riser, up 2.7 per cent to 389½p, as Goldman Sachs added it to its "conviction buy" list.

Sreedhar Mahamkali, analyst, wrote: "We believe Sainsbury's share price sufficiently captures the recent slow down in top-line growth, given valuation on most metrics now look attractive.

"Sainsbury is the only company in our universe where the property value of £8.6bn is higher than its current EV [enterprise value]".

Wm Morrison gained 1.3 per cent to 307¼p.

In the wider market, the FTSE 100 was sharply lower, off 1.8 per cent at 6,108.2, while the mid-cap FTSE 250 lost 1.8 per cent to 9,9849.5.

US indices fell in New York. The Dow Jones Industrial Average lost 0.7 per cent to 12,684.9, a decline of 91 points. Sentiment on both sides of the Atlantic toom a knock from news of a $10bn loss in the fourth quarter, prompting it to cut dividends by 40 per cent. The loss included $18.1bn in subprime-related writedowns, and a $4.1bn increase in consumer-related credit costs. The loss is twice as large as analysts expected.

Kingfisher fell 4.8 per cent to 124.8p as JP Morgan downgraded the owner of B&Q from "neutral" to "overweight".

December consumer price inflation came in steady at 2.1 per cent, according to the Office for National Statistics said on Tuesday, above the Bank of England's target for the third consecutive month.

The reading was broadly in line with analysts' expectations, although higher than the Bank's own forecast in its November Inflation Report that inflation would average 1.9 per cent over the last quarter of 2007.

A downgrade from Goldman Sachs dragged FirstGroup, the transport company, 3.6 per cent lower to 650½p.

Oil stocks dragged on the wider market as crude prices continued to move further away from the $100 per barrel mark.

BP fell 1.8 per cent to 586p and Royal Dutch Shell lost 0.8 per cent to £20.86.

Taylor Wimpey lost 0.1 per cent to 172.3p as the housebuilder said the UK housing market was "subdued" in the second half of 2007 but said prices remained stable.

In the FTSE 250, Northern Rock slumped a further 12.7 per cent to 72p as the stricken lender's extraordinary general meeting kicked off in Newcastle.

Burberry lost 12.2 per cent to 427p after a disappointing trading update from the retailer.

Lower down the market, Regent Inns jumped 57 per cent to 26p after the pubs operator said it had received a takeover approach.

However, i-mate slumped 42 per cent to 19½p as the hand-held device group warned on profits and said it was "reviewing its strategic alternatives".