THE LONDON market was rattled yesterday after bellwether stock Tesco took investors by surprise with a stark profit warning.

The British retailer, which is one of the largest constituents of the FTSE 100 index, saw its share price plummet 16 per cent on huge volume after it missed analysts’ earnings forecasts.

DUBLIN

The Iseq got off to a positive start yesterday after a number of bond auctions in the euro zone met with success. However, its early gains were erased over the course of the afternoon, and it closed almost 1 per cent down.

One broker noted that a little bit of “new year euphoria” has been helping the Irish market, and attributed yesterday’s fall to profit-taking.

Drug manufacturer Elan drifted almost 3 per cent lower, or 30 cent, to €10.60.

Ryanair’s recent run of good form stalled yesterday, and the airline shed 2.7 per cent to €3.80.

Packaging group Smurfit Kappa moved higher, closing almost 1 per cent ahead, or about five cent, at €5.04.

Kingspan also delivered a strong performance, jumping 2.7 per cent to just under €6.75.

LONDON

UK stocks retreated for a second day as retailers tumbled after Tesco reported Christmas sales that missed estimates.

The retailer plunged 16 per cent, the most since at least 1988, after Britain’s largest supermarket chain also lowered its profit forecast.

J Sainsbury and William Morrison supermarkets both tumbled more than 5 per cent. The benchmark FTSE 100 Index fell 8.4, or 0.2 per cent, to 5,662.42 at the close in London, even as two stocks gained for each that fell.

“Doom and gloom within the retail sector has driven stock markets lower,” said Angus Campbell, head of sales at Capital Spreads.

“Investors don’t like seeing a massive bellwether stock like Tesco issuing profits warnings and it’s always going to have a knock- on effect for the wider market.”

Marks and Spencer, Britain’s largest clothing retailer, slipped 2 per cent to 315.6 pence.

Home Retail Group fell 4.9 per cent to 83 pence after the owner of the Argos and Homebase chains forecast a drop in profits as holiday sales slumped and said it planned a “significant” dividend cut.

In contrast, Ocado Group soared 33 per cent to 74 pence after revenue at the UK’s largest online-only grocer accelerated in the Christmas season led by sales of its own-label items.

Elsewhere, Royal Bank of Scotland led UK lenders higher as the cost for European banks to borrow in dollars eased to a four-month low. RBS jumped 5.6 per cent.

EUROPE

European stocks declined after reports that showed US retail sales and initial jobless claims missed economists’ forecasts outweighed lower borrowing costs at Spanish and Italian debt auctions.

The Stoxx Europe 600 Index fell 0.2 per cent to 249.50 at the close in London. The gauge had earlier advanced as much as 0.9 per cent after Spain and Italy sold debt, raising their targeted amounts at lower yields.

France’s CAC 40 Index slipped 0.2 per cent and Germany’s DAX Index climbed 0.4 per cent.

Sulzer jumped 5.1 per cent to 112.50 Swiss francs. The company said 2011 orders rose 14 per cent, or 8.4 per cent nominally, to 3.6 billion francs.

Petroplus surged 16 per cent to 1.39 francs, the most since November 2006. Europe’s largest independent refiner has reached a temporary agreement with lenders to renegotiate its debts and maintain operations at its Coryton and Ingolstadt refineries.

US

US stocks were little changed in early trade, after paring an early slump in the Standard and Poor’s 500 Index, as disappointing figures on jobless claims overshadowed optimism about the drop in borrowing costs at debt auctions in Europe. Chevron retreated 2.3 per cent after oil-refining profit slumped. Bank of America reversed an earlier advance, dropping 1.6 per cent.

Fertiliser producers CF Industries and Mosaic declined at least 1.4 per cent after reports showed higher-than-expected US corn and soya bean inventories.

The KBW Bank Index retreated 0.3 per cent, snapping a three-day gain.

Bank of America sank 1.6 per cent to $6.76, following an 11 per cent surge over three days.

JPMorgan Chase retreated 0.5 per cent to $36.48. Sears slumped 3.7 per cent to $31.70 after two sources familiar with the situation said suppliers would no longer be able to get loans from CIT for their shipments to the retailer.

Wynn Resorts tumbled 3.7 per cent to $107.73.

Vice-chairman Kazuo Okada sued the casino operator for access to financial records in a dispute with the company over the use of funds.

Dow Chemical rallied 3.4 per cent to $32.49.

The Dow Jones Industrial Average ended the day up 0.12 per cent to 12,464.93. – (Additional reporting: Bloomberg)