FTSE slips from three-week highs as Tesco slumps

By Kit Rees
FILR PHOTO: The London Stock Exchange is seen in the City of London April 11, 2011. REUTERS/Toby Melville/File Photo

By Kit Rees

LONDON (Reuters) - Britain's top share index inched lower on Tuesday after rising to a three-week high in the previous session, as results weighed on Tesco shares and the broader UK supermarket sector.

The blue chip FTSE 100 <.FTSE> index fell 0.2 percent in light volume before a market holiday later in the week.

Industrial stocks led the index's gains, with engineer Rolls Royce gaining the most, 2.5 percent. Materials and financials were the biggest drag.

British grocers fell, led by Tesco . Its shares dropped 5.7 percent after the company reported full-year figures.

Tesco's full-year profit beat forecasts, rising 30 percent, but analysts flagged such negatives as a decline in international margin and a slowdown in UK and Ireland margins. The stock had rallied around 6 percent over the five sessions before the results.

"I am particularly surprised that Tesco finds itself so far down at the bottom (of the FTSE 100) because it seems, on all accounts, to be quite a positive results release on the whole," Henry Croft, research analyst at Accendo Markets, said.

"It just seems that these exceptional costs have really got in the way of investor sentiment because returning to sales growth for the first time in seven years is no mean feat," Accendo Markets' Croft added.

Peers Morrison's and Sainsbury also fell, by 1.7 and 2.7 percent respectively. Mid-cap Booker Group , which has agreed to a 3.7 billion-pound ($4.6 billion) takeover by Tesco, also dropped 4.1 percent.

Shares in recruiter Pagegroup rose the most among British mid caps <.FTMC>, rising 7.1 percent. The company posted a record quarterly gross profit that beat expectations, helped by growth in its markets outside the UK.

(Reporting by Kit Rees; Additional reporting by Danilo Masoni; Editing by Larry King)