* M&S Q3 clothing lfl sales down 2.1 pct, food up 1.6 pct
* Tesco 6 weeks to Jan 4 UK lfl sales, ex fuel and VAT, down 2.4 pct
* Morrisons 6 weeks to Jan 5 lfl sales down 5.6 pct, ex VAT
* M&S shares rise up to 3.8 pct, Tesco's fall up to 4 pct
LONDON, Jan 9 (Reuters) - Tesco, Marks & Spencer and Morrisons, three of the biggest names in British retailing, posted heavy falls in Christmas sales, showing few signs that their costly turnaround plans are working, and raising the pressure on their leaders.
Despite signs the British economy is improving, household incomes remain stagnant as inflation outstrips slim pay rises, and Christmas has so far been mixed for the store groups.
"All three reports today were pretty nasty - Morrisons especially so," said a UK investor with shares in all the retailers.
Next, Britain's No. 2 clothing retailer, John Lewis , the nation's biggest department store group and No. 6 grocer Waitrose have reported positive updates, driven by powerful online performances. But others, such as Debenhams and Mothercare have issued profit warnings.
Tesco, M&S and Morrisons are under intense pressure from their traditional rivals but are also facing a new wave of competition from discounters such as Aldi , Lidl and Primark, as well as Internet specialists like Amazon and ASOS.
Annual inflation fell to a four-year low of 2.1 percent in November but consumers have been hit particularly by soaring energy bills. Average earnings in Britain were up just 0.9 percent in the three months to October, compared with the previous year.
All retailers have said they expect 2014 to remain tough for Britons with wage rises continuing to fall short of inflation.
M&S, Britain's biggest clothing retailer which started out as a penny bazaar 130 years ago, reported a 10th consecutive quarter of falling clothing sales and cut its margin guidance after fierce discounting by rivals forced it to slash prices in December.
Its sales of general merchandise - which spans clothing, footwear and homewares - fell 2.1 percent in its third quarter to Dec. 28 at stores which have been open for more than a year. This drop was greater than analysts' forecasts and the firm avoided having to issue a formal profit warning only by delivering a strong performance in its food business.
At Tesco - the world's third biggest retailer which traces its roots to a market stall in London's East End in 1919 - like-for-like sales fell 2.4 percent over the six weeks to Jan. 4 in its home market. Tesco has more than 3,100 stores in Britain, contributing two thirds of group revenue.
This outcome was at the bottom end of analysts' expectations and prompted Tesco to acknowledge that the market consensus for its 2013-14 profit had come down.
Morrisons, the No. 4 UK grocer, revealed a 5.6 percent drop in like-for-like sales in the six weeks to Jan. 5, and forecast year profit towards the bottom end of market expectations.
Chief Executive Dalton Philips had forecast in November a return to like-for-like growth in the Christmas quarter.
The firm, hit hard by its late entry into online and convenience channels as well as the growth of German discount grocers Aldi and Lidl, said it did not see the usual surge in shoppers who normally upgrade to its stores at Christmas.
The weak updates pile pressure on Tesco CEO Phil Clarke, who has been in the post nearly three years, M&S's Marc Bolland, and Morrisons' Philips, who have both held the top jobs for nearly four years.
All highlighted the tough trading conditions they were up against but stressed their strategies would eventually deliver.
"Holding our nerve was certainly something that we were doing, but the market didn't," said Bolland in reference to the unprecedented levels of clothing discounting.
The Dutchman is in the final year of a three-year, 2.3 billion pound ($3.8 billion) plan to make M&S an international retailer connecting with customers through stores, the Internet and mobile devices.
Bolland has denied the reception of M&S's autumn/winter clothing ranges will make or break his leadership, repeatedly saying that recovery will be "step by step".
He highlighted "early signs of improvement" in the womenswear business, with small market share growth in this area for the first time in three years.
Though M&S shares have fallen 4 percent over the last quarter they have risen 20 percent over the last year on hopes of a recovery and increased as much as 3.8 percent on Thursday.
"It tells you how poor sentiment was going into this statement," said the UK investor. "The bull case for M&S still probably rests with a Next-like transformation, with increased shareholder returns driven by dividend growth/special dividends or buybacks."
Clarke, 20 months into a plan that has seen over 1 billion pounds poured into stores, extra staff, new product ranges and prices, said UK consumers remained under severe pressure.
"They don't have as much to spend as they used to because of the price of fuel and the price of utilities," he said.
Consumers were shopping more locally and online, shopping little and more often, he said, noting that Tesco was adapting to the changes.
Shares in Tesco fell up to 4 percent, while Morrisons fell up to 7.7 percent.
"I don't think any of these situations is irretrievable, but there are no tailwinds at the moment so it's all headwinds for them," said Jim Stride, head of UK Equities at AXA IM, who is a shareholder in all three retailers.