UK's FTSE drops as airline stocks slide

Tue Jul 8, 2014 10:23am EDT

* FTSE 100 down 0.9 pct

* Airlines down after Air France profit warning

* M&S falls after latest sales drop

* Slump in UK factory output also weighs on sentiment

By Sudip Kar-Gupta

LONDON, July 8 (Reuters) - Britain's top equity index lost ground on Tuesday as airline stocks such as International Consolidated Airlines Group were hit by a profit warning from Air France-KLM.

The blue-chip FTSE 100 index was down by 0.9 percent, or 63.13 points, at 6,760.38 points going into the close of the trading session.

International Consolidated Airlines Group - the owner of British Airways - slumped 7.9 percent after Air France-KLM's profit warning, making ICAG the worst-performing FTSE 100 stock in percentage terms.

Low-cost airline easyJet also fell 5.5 percent after Air France-KLM warned that its 2014 profits could be as much as 12 percent lower than previously predicted because of over-capacity and weak prices.

"The profit warning just before the busy summer months for the airlines sector has dampened investors' sentiment. It's a confirmation that, generally, the last three months had been difficult for the sector," said Accendo Markets' senior trader Tom Robertson.

M&S FALLS

Clothing and food retailer Marks & Spencer fell 1.4 percent after the company reported that first-quarter sales had been held back by its transition to a new website.

M&S kept its full-year profit guidance, but many analysts said the company remained under pressure, with its results on Tuesday showing a 12th consecutive quarterly drop in overall general merchandise sales.

"I think M&S has got its work cut out," said Beaufort Securities sales trader Basil Petrides, who had sold M&S shares in the run-up to Tuesday's business update.

Some traders said a surprise slump in UK factory output in May was also putting pressure on the FTSE.

Previous rallies this year have failed to get the FTSE past 6,900 points, which is considered a necessary hurdle to jump before it can move on to record highs.

"The UK data certainly has not helped. The FTSE just continues to underwhelm", said Hantec Markets analyst Richard Perry. (Additional reporting by Atul Prakash; Editing by Larry King and Louise Heavens)

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