July 21, 2014 / 11:51 AM / 3 years ago

Weaker tobacco, retail shares drag down FTSE, Tesco up

* FTSE 100 index falls 0.3 percent

* Tobacco stocks hit after $23.6 bln fine on RJ Reynolds

* Tesco up on investor relief that CEO is leaving

* Ukraine worries keep a lid on equity markets

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 their U.S. rival RJ Reynolds and retailers slipping after a profit warning from Tesco.

A 1 percent fall in shares of British American Tobacco and a 1.6 percent drop in Imperial Tobacco together took the most points off the blue-chip 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,” David Battersby, investment manager at Redmayne-Bentley, said.

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 1.4 percent respectively.

However, Tesco rose 2.2 percent, the top gainer on the blue-chip FTSE 100 index 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.”

The FTSE 100 index was down 0.3 percent at 6,727.31 points by 1121 GMT, with analysts saying that concerns about Ukraine would continue to peg back the FTSE and other equity markets.

Western governments blamed pro-Russian forces for shooting down a Malaysian passenger plane over eastern Ukraine last week and may step up sanctions against Russia in response. Ukraine launched a military assault to break pro-Russian rebels’ hold on the eastern city of Donetsk on Monday.

“The Ukraine situation has the potential to get ever worse,” Hantec Markets’ analyst Richard Perry said. (Additional reporting by Sudip Kar-Gupta; Editing by Susan Fenton)

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