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Airline stocks fall amid worries on fares

A profits warning by Lufthansa triggered a slump in airline stocks today as the German carrier highlighted falling fares on European and American routes.

International Airlines Group, which owns British Airways and Iberia, saw shares slump 4%, or 17.4p, to 395.2p in the wake of the downgrade, which lowered Lufthansa's operating profit forecast by as much as a third to 1 billion euros (£806 million) for this year and by 24% to 2 billion euros (£1.6 billion) in 2015.

The wider London market was already under pressure after the World Bank cut its forecast for global economic growth this year to 2.8% from the 3.2% it forecast in January. The FTSE 100 Index was 35.3 points lower at 6838.2, while there were similar falls in Paris and Frankfurt.

The latest encouraging update from the UK economy offered a fresh boost to sterling against the US dollar and euro after the unemployment rate fell to a five-year low of 6.6%. The number of people in work stood at 30.54 million after a rise which was the highest since records began in 1971.

The Lufthansa warning that its European business was seeing increased excess capacity, leading to falling prices on these routes, caused low-cost airline easyJet to fall 55p to 1538p, a decline of 3%. Dublin-based operator Ryanair was down 2%.

In a grim session for the airline sector, Rolls-Royce shares were 2% or 25.5p lower at 1050.5p after Emirates scrapped plans to buy 70 Airbus A350 planes.

Rolls said this will reduce its order book by 3.5% or £2.6 billion, although it remains hopeful that the delivery slots will be taken by other airlines.

The loss of the Emirates order comes in a year when Rolls-Royce expects revenues and profits will fail to grow due to the impact of defence spending cuts among major customers.

On the risers board, supermarket chain Sainsbury's jumped 2% despite reporting a 1.1% fall in like-for-like sales in the 12 weeks to June 7.

This was the second quarterly decline in a row but shares rose 5.75p to 335.35p on relief that the figure was in line with City expectations.

Shore Capital, which has a hold rating on Sainsbury's, said the outcome was "relatively sound", particularly when compared with its rivals. Tesco was flat at 295.25p, while Morrisons was half a penny higher at 195.15p.

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