Markets: Sainsbury's blow fuels spending fears

Fears of a consumer spending clampdown hit supermarket shares yesterday after Sainsbury's reported a worse-than-expected slowdown in sales.

The UK's third-biggest supermarket chain was the biggest Footsie faller following news of a 1 per cent rise in like-for-like sales during its fourth quarter - half that forecast by analysts and sharply down on the 3.6 per cent jump seen in the previous three months.

Shares in Sainsbury's fell more than 5 per cent or 19p to 335.3p, while rival Tesco dropped 1.2p to 380.2p, and Morrisons slipped 1.9p to 274.4p.

Meanwhile, Marks & Spencer advanced 5p to 345.5p following speculation a major shareholder at Sainsbury's was keen to pursue a merger with the high street giant.

Qatar Holding, which has a 26 per cent stake in Sainsbury's, declined to comment but is said to be interested in backing a 13 billion-plus bid for M&S.

The FTSE 100 index rose 33.17 points or 0.6 per cent to close at 5,795.88, showing little reaction to the Budget and shrugging off news from the Japanese government that this month's earthquake and tsunami would be the most expensive natural disaster in history. Yusuf Heusen, sales trader for IG Index, said: "London's leading equities showed little reaction to the 'Budget for growth' as they weighed up a cut in corporation tax against a downgrade of growth forecast."

The Budget did have an impact on the share price of some banks, following a surprise increase in the bank levy.

Barclays was down 1.25p to 287.25p, Royal Bank of Scotland fell 0.4p to 41.4p, and Lloyds was 0.9p lower at 60.2p.

Minutes revealed that the Bank of England's monetary policy committee (MPC) held its voting position earlier this month - with six members backing no change to interest rates. With no additional members joining the vote to raise rates, the pound fell against most major currencies - with weakness compounded by downgrades to growth revealed in the Budget. Sterling dropped to $1.63 and €1.15.

Mining stocks supported the market, following a profit-taking run in previous sessions triggered by the Japanese earthquake. Kazakhmys moved 61p higher to 1,431p.

Shares in broadcaster ITV were 4.4p lower at 80.4p after it was subject to a ratings downgrade from broker Jefferies.

Airport scanners and medical devices group Smiths rose 1 per cent after it overcame contract delays in its detection business to post a 25 per cent rise in half-year profits. With Smiths confident of meeting expectations for the full-year, shares rose 18p to 1,325p.

Rank Group added a further 2 per cent on top of the 14 per cent rise seen on Tuesday after it announced a bigger-than- expected rebate from the Taxman.

The Mecca bingo firm has been repaid 74.8 million in tax dating back to between 1973 and 1996 by HM Revenue and Customs and is also due to receive a further 79.5m in interest later this month.Shares were 3.3p higher at 150.3p.

The Scottish oil and gas explorer Melrose Resources closed down 1p at 265p, despite results showing its production was at an all-time high.