- Retailers weigh on UK FTSE as Morrison cuts outlook

Thu Mar 13, 2014 8:24am EDT

* FTSE 100 slips 0.2 pct, hovering near 1-month low

* Morrison's slump also hits Sainsbury and Tesco

* General retailers gain on Home Retail outlook

* Possible support for FTSE seen at 6,580

* Fall below 6,580 could herald bigger drop - traders

By Francesco Canepa

LONDON, March 13 (Reuters) - Britain's top equity index fell for a fifth straight session on Thursday, pulled down by losses in supermarket shares after Wm Morrison cut its profit outlook.

The revised outlook by Morrison led to a sell-off among British food retailers. Shares in Morrison and Sainsbury dropped around 7 percent to the bottom of the FTSE 100. Tesco fell 4.5 percent.

Morrison said it would spend 1 billion pounds ($1.66 billion) on price cuts over three years. That fuelled concern over pressure on margins in the sector, which faces stiff competition from discount chains such as Lidl and Aldi.

"Everyone feels Morrison and some of the other supermarkets have to take on the Aldis and Lidls of this world and ... get their prices down, and that's not good for profits," said Mike Franklin, investment strategist at Beaufort Securities. "I'd wait a bit for the food retailers to get out of this particular patch (before considering buying)."

Despite signs the British recovery is gaining momentum, profit worries have kept investors cautious about food retailers. They have preferred others sectors exposed to the UK economy, such as general retailers or house builders.

That continued on Thursday. Shares in Home Retail Group rose 5.8 percent after the owner of retailers Argos and Homebase said annual profit would exceed the top end of market forecasts. Kingfisher, Europe's biggest home-improvement retailer, rose 1.8 percent.

The Datastream UK food retailers sector fell 5 percent between the start of the year and March 12, underperforming a 10 percent rise for general retailers. Food retailers were left trading at a 24 percent discount to general retailers based on their price-to-earnings ratios, the widest gap since 1999.

"If you wanted to pick up something relatively cheaply and you're prepared to hold on to it for some time, then they (UK foods retailers) may be quite attractive, but it may take some months to see the benefit of that," Beaufort's Franklin said.

Trading volumes in Morrison and Sainsbury were over three times their averages for the past three months. Volumes on FTSE stocks as a whole were less than half the index's average.

The blue-chip FTSE 100 index slipped 0.2 percent to 6,606.16 points, falling for a fifth straight session as concerns over Chinese growth and political tensions in Ukraine weighed on sentiment. It was holding just above a Wednesday's one-month intraday low of 6,598 points. Further support was seen at the index's 200-day moving average, 6,580 points.

"Investors are running for cover at the moment. I could see the FTSE falling down to the 6,500-point level soon," said Berkeley Futures associate director Richard Griffiths.

Central Markets trading analyst Joe Neighbour felt that if the FTSE fell below its 200-day moving average, it was then vulnerable to a fall to its 2014 low of around 6,417 points, reached in early February.

The FTSE 100 rose 14.4 percent in 2013, its best annual gain since 2009. It reached its highest level in around 13 years in early January this year.

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