Investors continued to ditch supermarket stocks amid fears that Tesco's troubles will trigger a deepening of the price war in the beleaguered sector.

Morrisons was the biggest faller in the FTSE 100 Index, while Tesco boss Dave Lewis's first day in the job was marked with a fall of two per cent.

Shore Capital analyst Clive Black said: "Tesco needs to improve and soon, but the reality with such large organisations is that there is no quick fix to its trading problems."

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Overall, the FTSE 100 edged up 5.6 points at 6825.3 at the start of an important week for monetary policymakers in the UK and Europe.

Germany's Dax and the French Cac were both broadly unchanged, while in New York the Dow Jones Industrial Average was closed for Labor Day.

The odds on a rates rise from the Bank of England lengthened after the closely-watched CIPS/Markit purchasing managers' index survey for the manufacturing sector showed the worst performance in 14 months.

The poor reading, which was blamed on the impact of geopolitical tensions affecting the eurozone, kept the pound in check at 1.66 versus the US dollar .

Economists said it was now more unlikely that the Bank would want to jeopardise the UK's recovery by raising rates. Sterling was also little changed against the euro, at 1.27.

Tesco was again the main focus for investors after it said on Friday it would cut its dividend by 75 per cent in the wake of more poor trading.

It was also reported at the weekend that one of its top-ten shareholders, the US investment fund Harris Associates, has sold two-thirds of its stake in recent months because the supermarket was becoming "too risky".

Tesco shares fell to an 11-year low on Friday and were down another 4.4p to 225.6p yesterday.

Morrisons was at the top of the fallers board - off 4p at 173.5p - while Sainsbury's was down 0.8p at 289.5p. Elsewhere, HSBC shares were lower after respected fund manager Neil Woodford sold his holding due to concerns about "fine inflation" as regulators continue their crackdown on past wrongdoings in the industry.

HSBC shares were 4.5p lower at 647.5p, while Royal Bank of Scotland was off 2.5p to 360.3p. Barclays dipped 0.4p to 224.1p after announcing a deal to sell the bulk of its operations in Spain to Caixa for £630 million, to give a £500m loss on the book value.

On the risers board, ITV was up by more than three per cent on speculation that Liberty Global is preparing for a possible takeover swoop, having recently bought a 6.4 per cent stake.

The biggest risers on the FTSE 100 were ITV up 7.5p at 218.7p, Marks & Spencer up 11.1p at 441p, BAE Systems up 10.9p at 456p and Kingfisher up 4.9p at 308.6p.

The biggest fallers were Morrisons down 4p at 173.5p, Mondi down 21p at 1012p, Tesco down 4.4 at 225.6p and Shire down 59p at 4864p.