Tesco's disappointment hits the FTSE

A DISAPPOINTING trading update from Tesco upset food retailers yesterday, while a broker downgrade rattled tobacco stocks, sending the Footsie into a tailspin.

The benchmark FTSE 100 index closed 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 Footsie faller - down 4.3 per cent or 18.2p to 405.6p - after the world's third-biggest retailer missed Christmas sales forecasts.

Manoj Ladwa, a senior trader at ETX Capital, said: "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."

Weakness in tobacco stocks was also a big drag on the blue chip index, as negative broker comment hit both British American Tobacco and Imperial Tobacco, down 86p at 2,325p and 26p at 1,915p respectively. BofA Merrill Lynch downgraded the two cigarette makers to "neutral" from "buy".

The Christmas retail reporting season created more winners and losers: Game Group and Argos-owner Home Retail Group were soaring ahead after their festive reports, but Currys-parent Dixons Retail Group fell after disappointing investors.

Retailers Marks & Spencer and Next were enjoying gains, up 7.4p to 380p and 41p to 2,094p respectively.

In the FTSE 250 Index, Home Retail Group jumped 21.1p to 227.1p after it said its profit forecasts remained intact after the festive period.

Dixons Retail Group moved in the opposite direction, down 2.4p to 21.4p after it said UK and Ireland like-for-like sales fell 4 per cent and cautioned that annual profits were expected at the bottom end of forecasts.

Halfords was another faller, down 15p to 405p, as it also said profits were likely to be at the lower end of market forecasts, due to poor sales of children's bicycles.

But Game Group jumped 16 per cent or 9.8p to 72p after a strong Christmas season for games releases helped improve its UK and Ireland trading significantly, with sales down 0.5 per cent against a 7.6 per cent drop in the previous 18 weeks.

Among the Scottish stocks, Aberdeen-based transport giant FirstGroup edged down 0.9p to 399.9p after the company said its profits would take a 7 million hit after pre-Christmas snowed affected its UK bus and rail operations.

But the firm remained upbeat, saying it was still on course to raise its full-year dividend by 7 per cent. Perth-based rival Stagecoach was down 2.6p at 212.6p.

Successful bond auctions in Spain and Italy helped to ease investors nerves over the eurozone sovereign debt crisis.

Royal Bank of Scotland rose 1.4p to 42.6p, while fellow taxpayer-backed player Lloyds Banking Group added 0.8p to 68.5p. Barclays, believed to have a lot of exposure to the Iberian peninsula, was up 3.4p to 306p.

News of the successful European bond sales left the pound down against the euro, at €1.19.But there was little reaction to the widely anticipated decision by the Bank of England to leave interest rates on hold at a record low of 0.5 per cent and quantitative easing unchanged at 200 billion.