July 8, 2014 / 4:01 PM / in 3 years

UK's FTSE drops 1.3 pct as airline stocks slide

* FTSE 100 ends day down 1.3 pct at 6,738.45 points

* Airlines slump after Air France profit warning

* M&S falls after latest sales drop

* Shire down as latest Abbvie offer fails to convince

* Slump in UK factory output also weighs on sentiment

By Sudip Kar-Gupta

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

The blue-chip FTSE 100 index fell 1.3 percent or 85.06 points to 6,738.45 points.

International Consolidated Airlines Group - the owner of British Airways - slumped 7 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 5.8 percent after Air France-KLM warned 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.

SHIRE AND M&S FALL

Clothing and food retailer Marks & Spencer fell 1.3 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.

Drugmaker Shire also fell 2.6 percent as traders expressed disappointment at rival Abbvie’s latest offer for Shire, with some saying they wanted Abbvie to offer more cash.

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 Hugh Lawson)

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