FTSE hit by weaker tobacco shares, geopolitical tension
* FTSE 100 index closes 0.3 percent lower
* Ukraine worries keep a lid on equity markets
* Tobacco stocks hit after $23.6 bln fine on RJ Reynolds
* Tesco up after it says CEO is leaving
By Atul Prakash
LONDON, July 21 (Reuters) - Britain's top share index fell on Monday, with tobacco stocks hit by a multi-billion-dollar fine against RJ Reynolds in the United States and retailers slipping after a profit warning from Tesco.
The prospect of further sanctions by the West against Russia over last week's downing of an airliner over Ukraine also discouraged investors from making big bets, analysts said.
Britain warned Russian President Vladimir Putin that the Russian economy would face further sanctions unless Moscow cooperated in providing full access to the Malaysia Airlines crash site and stopped stoking instability in Ukraine.
"Heightened geopolitical tension is part of the reason for the sell-off today. After a good short-term rally, investors have become cautious as there is a lot of uncertainty," James Butterfill, global equity strategist at Coutts, said.
The blue-chip FTSE 100 index ended 0.3 percent lower at 6,728.44 points, with tobacco stocks, retailers and energy shares among the top decliners.
A 0.9 percent fall in British American Tobacco and a 1.5 percent drop in Imperial Tobacco took the most points off the FTSE 100 index, after a Florida jury imposed punitive damages of $23.6 billion against RJ Reynolds Tobacco Company.
"Investors are concerned that if this verdict doesn't get quashed when it goes to appeal, then this could have severe implications for the entire industry," said David Battersby, an investment manager at Redmayne-Bentley.
The market also came under pressure following a drop in UK retailers after a profit warning by Tesco, Britain's biggest retailer. Shares of rival supermarkets WM Morrison and Sainsbury fell 2.4 percent and 2 percent respectively.
However, Tesco rose 1.3 percent after the group announced its boss Philip Clarke will quit. Clarke will be replaced by Unilever executive Dave Lewis, who is credited with revamping a number of businesses at the consumer goods group.
More recently, Tesco has been squeezed between discounters Aldi and Lidl at one end and upmarket grocers such as John Lewis's Waitrose at the other, and hurt by the slowest growth in the overall UK grocery sector for a decade.
"There's some relief that Clarke is leaving, allowing the company to have a fresh start," Spreadex sales trader Lee Mumford said.
Battersby of Redmayne-Bentley said that in order for the pressure to recede, UK retailers like Tesco have got to compete on an equal footing with the discounters. "That's why I believe that their margins are going to erode."
Insurance shares showed little reaction to news that pension reforms would be expanded further, with workers getting more flexibility to cash in their pension savings.
Analysts said the news was largely expected and weakness among insurers was in line with risk aversion in the broader market. Legal and General, Aviva and Standard Life were flat to 0.5 percent lower. (Additional reporting by Sudip Kar-Gupta; Editing by Larry King)
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