FTSE up as Sainsbury buoys retailers; rates eyed

By Michael Taylor

LONDON, Jan 10 (Reuters) - The FTSE 100 .FTSE of Britain's leading shares edged up on Thursday, led by Britain's third-largest supermarket group J. Sainsbury (SBRY.L: Quote, Profile, Research, Stock Buzz), ahead of two European interest rate decisions. At 0839 GMT the blue-chip index was up 18.7 points, or 0.3 percent, at 6,291.4 after falling 1.3 percent on Wednesday.

Sainsbury climbed 4.2 percent after it met analyst expectations and reported like-for-like sales excluding fuel rose 3.7 percent in the third quarter.

The results were in stark contrast to Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz), which suffered its biggest-ever fall on Wednesday after reporting its worst quarterly performance in two years, hitting retail stocks and heightening fears over an economic slowdown. M&S was flat on Thursday.

Among other retailers, Kingfisher (KGF.L: Quote, Profile, Research, Stock Buzz) tacked on 4.2 percent, Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) added 1.3 percent and WM Morrison Supermarkets (MRW.L: Quote, Profile, Research, Stock Buzz) climbed 2.9 percent. The latter strengthened its position in the UK grocery market during the Christmas trading period, according to the latest figures from research group TNS. [ID:nL09510257]

"The retailers have been helped by Sainsbury ... which may be an indication that the savageness in the sector yesterday was perhaps overdone," said David Scott, a senior stockbroker at Redmayne-Bentley.

"There is this whole problem of what's going to happen to retail spending -- it's consistently grown in excess of GDP for many years and it has to slow down."

The better-than-expected results from Sainsbury strengthened the case for the Bank of England to hold its key interest rate unchanged at 5.5 percent at 1200 GMT.

Investors have ramped up their bets on a cut and now see a 60 percent chance policymakers will follow December's quarter-point reduction with another one to ward off a steep consumer-led slowdown in the economy.

The European Central Bank is expected to keep euro-zone rates at 4.00 percent, a decision also due on Thursday.

"They (BoE) will put them on hold," said Redmayne-Bentley's Scott. "While the economy is crying out for a cut, inflation is above target and heading higher, and sterling continues to weaken.

"After having lost so much credibility in the eyes of international investors with Northern Rock, they have to steady the ship a bit."

Among other stocks, Scottish & Newcastle SCTN.L gained 1.1 percent after it rejected a revised bid from Carlsberg and Heineken at 780 pence a share, or 7.6 billion pounds, but said it would be willing to talk about a bid of at least 800p.

Previously, Carlsberg (CARLb.CO: Quote, Profile, Research, Stock Buzz) and Heineken (HEIN.AS: Quote, Profile, Research, Stock Buzz) had offered 750p in cash, or 7.3 billion pounds, in a bid that would split up the British brewer of Foster's and Kronenbourg.

Traders said the gain in S&N was limited and stock in the bidders was falling because there were fears the deal would not be done.

Insurer Legal & General (LGEN.L: Quote, Profile, Research, Stock Buzz) was 2.3 percent higher as it said its UK life and pensions sales rose 8 percent in 2007 while protection and annuities rose 4 percent, helped by a record fourth-quarter for bulk-purchase annuities. [ID:nWLB5542]