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Stock tumbles as Tesco issues profits alert

INVESTORS dumped Tesco shares as Britain's biggest supermarket issued a shock profits warning and cut its interim dividend by three quarters.

The stock tumbled to an 11-year low, bottoming out at 222p before paring some of the losses to finish nearly seven per cent, or 16.4p, down at 230p, a fall of 38 per cent on the share price one year ago.

Its shock profit warning and disclosure that new chief executive Dave Lewis will now start work on Monday, a month earlier than planned, also pulled down supermarket rivals, as the wider FTSE 100 Index rose 14 points to 6819.8.

Markets were digesting a worrying fall in eurozone inflation to 0.3 per cent, tempered by a slight rise in the measure of core inflation, which excludes volatile food and energy prices, to 0.9 per cent.

Germany's Dax and France's Cac 40 were up slightly, shrugging off rising tensions over Ukraine as several European foreign ministers called for more sanctions after Russia was accused of sending army units into the country.

Investors were also weighing up a mixed bag of economic data from the US, with a key consumer sentiment index ticking up in August but official data showing consumer spending edging down in July.

New York's Dow Jones Industrial Average was a bit slightly ahead at the time of the close in London.

The pound was flat against the greenback at just under 1.66 US dollars and up against the single currency to slightly above 1.26 euros, as weak eurozone inflation increased the prospect of more stimulus from the European Central Bank.

In London, Tesco's surprise announcement revealed that trading profits from 2014/15 were likely to fall from £3.3 billion to between £2.4bn and £2.5bn, well below City forecasts.

It also said it would slow its store refresh programme in order to save £400 million.

Analysts speculated that savings from the lower dividend and curtailed spending on refits would help new boss Mr Lewis build up a war chest to ramp up the supermarket price war, causing investors to dump stock in its rivals too.

Morrisons which has already embarked on a £1bn price cutting strategy, fell five, or 9.4p to 177.5p, while Sainsbury's was off four per cent, or 13.2p, at 290.3p.

Marks and Spencer, which has its own upmarket food offering, a division which has performed well in contrast to the woes of its fashion department, was also dragged lower, falling two per cent, or 8.2p, to 429.9p.

Meanwhile, pharmaceutical group Astra Zeneca was one of the top FTSE 100 risers on persistent speculation that US rival Pfizer could return for a second takeover attempt after Astra spurned a £69bn offer earlier this year.

Shares climbed two per cent, or 87.5p, to 4567p.

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Food and drink

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