FTSE falls as Tesco tumbles

By Tricia Wright and Sudip Kar-Gupta LONDON (Reuters) - Britain's top equity index slid on Monday, led lower by supermarket retailer Tesco which slumped as it cut its profit forecast for the third time in two months after finding a fault in its accounts. The blue-chip FTSE 100 index, which rose 0.3 percent on Friday on relief that Scotland voted against breaking away from the UK, closed down 64.29 points, or 0.9 percent, at 6,773.63, extending its retreat from this month's 14-1/2 year high of 6,904.86. The FTSE 350 Mining Index dropped 3.8 percent on concerns that a flash manufacturing PMI reading from China, the world's top metals consumer, could come in below the 50 point level on Tuesday, indicating that manufacturing activity is contracting. Tesco sank 11.6 percent - its biggest one-day percentage drop since January 2012 - after the firm said it had called in its lawyers as well as new accountants to investigate an error in its UK food business that forced it to cut its first-half profit outlook by 250 million pounds ($410 million). Trading volume in Tesco stood at almost six times its 90-day daily average. Shares in peers Sainsbury's and Morrisons fell 1.9 percent and 1.6 percent respectively. Traders said Tesco's admission would add more pressure to a company that has lost market share this year to discount rivals. "Tesco used to be the most innovative store in the grocery market but given that Aldi and Lidl have taken its customers by cutting the price of their products without compromising too much on quality, Tesco has been extremely slow to respond to those changes. Today's news is another disaster for the company," said AvaTrade chief market analyst Naeem Aslam. HSBC cut its target price for Tesco to 175 pence from 195 pence and kept its "underweight" rating, noting that this accounting issue relates to one area, the UK food business, and raises the spectre there could be more issues across the group. Shares in Tesco closed at an 11-year low of 203 pence, having dropped almost 40 percent this year and some 30 percent in the last three months alone. If Tesco falls another 20 percent, George Godber, manager of the CF Miton UK Value Opportunities Fund, would consider buying its shares, though "it would have to go in hand with the chief exec saying 'this is what I want to do to fix the business'". A decline in the shares of major miners such as Anglo American and Glencore, also pegged back the FTSE. Glencore's shares were also impacted after smaller rival London Mining said the two firms were embroiled in a contract dispute. Some traders remained optimistic that the FTSE 100 would gradually rise towards the end of the year to challenge 7,000 points, which would mark a record high. The FTSE has been supported over the course of this year by Britain's economic recovery and a pick-up in corporate takeover activity. "I would be simply amazed if the FTSE failed to test 7,000 points," said InterTrader chief market strategist Steve Ruffley. (Editing by Toby Chopra)