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Supermarket shares dip on Tesco update

A gloomy trading update from Tesco put supermarkets in the spotlight as chief executive Philip Clarke said he could not remember a worse quarterly performance in his four decades at the retailer.

Shares in Britain's biggest grocer fell after it reported a 3.7% decline in like-for-like sales for the three months to May 24 as Mr Clarke pointed to tough conditions facing the sector and warned of further falls to come.

The wider FTSE 100 Index was down 23.3 points at 6813 amid disappointing economic data.

Growth in Britain's dominant services sector slipped slightly in May according to the closely-watched Markit/CIPS purchasing managers' index (PMI), echoing slight falls in readings from manufacturing and construction earlier this week.

They still indicated strong GDP growth for the UK but separate PMI figures showing a growth slowdown in the eurozone highlighted an "uneven, stuttering and lacklustre recovery" on the continent according to Markit chief economist Chris Williamson.

Germany's Dax and France's Cac 40 were lower.

In London, Tesco's sales decline did little to boost confidence in Mr Clarke's £1 billion turnaround plan, though the figure was not as bad as the fall of more than 4% that had been feared.

Shares initially climbed 1% but later fell back 2p to 295.4p.

Mr Clarke said: "There hasn't been a quarter of like-for-like sales like this before that I can remember, but I've never seen a period of such intense transformation for the industry."

Tesco, like its rivals, is facing a challenge from discounters Aldi and Lidl and latest industry figures show its market share has declined steeply. Mr Clarke said a squeeze on real wages was continuing to have an effect despite recent signs of optimism.

Sainsbury's shares were also under pressure, down 5.6p to 228.2p while Morrisons slipped 0.4p to 194p.

Other fallers included brewer SABMiller, which declined 26p to 3267.5p in the wake of a broker downgrade from Morgan Stanley.

Meanwhile, Vodafone was also down after regulator Ofcom announced proposals to further reduce termination rates by April 2017. Shares were 3.5p lower at 204p.

Elsewhere, plastic packaging group RPC was buoyed by well-received annual results that showed adjusted profit before tax up 12% to £89.5 million and said a new strategy meant it was in place to achieve profitable growth in the US.

Shares topped the FTSE 250 risers' board, climbing nearly 5%, or 29.5p, to 652p.

Brokerage firm Tullett Prebon fell after announcing chief executive Terry Smith was to leave. Shares dropped 14.6p to 289.4p.

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