Supermarkets pull FTSE 100 lower

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Last Updated at 19 Oct 2017, 15:21 GMT *Chart shows local time FTSE 100 intraday chart
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(Close): A downbeat trading outlook from Sainsbury's sent shares in supermarkets tumbling, dragging the FTSE 100 lower.

Sainsbury's shares fell almost 7% after second quarter like-for-like sales, excluding fuel, fell 2.8%.

It said the sales performance in the second half of the year was likely to be similar to the first half.

There is also speculation Sainsbury's might cut its dividend when it unveils a strategic review next month.

"The increasing price consciousness and waning loyalty of UK consumers is fostering structural change in the grocery sector, with the Big Four seeing increasing scores of their traditional customer bases defect to discounters Aldi and Lidl," said George Scott from retail analysts Conlumino.

"The resultant onslaught of promotions to fight back, combined with easing of some commodity price inflation, means that the value of what goes into shopper baskets is being squeezed."

Among the other supermarkets, Morrisons - whose shares also went ex-dividend - fell 5% while Tesco dropped 3.2%.

Tesco announced on Wednesday that it had been notified by the Financial Conduct Authority (FCA) that it was under investigation following its admission last week that it overstated its half-year profit guidance by £250m.

The supermarket giant said it would continue to co-operate fully with the FCA and other relevant authorities.

The falls, placing the supermarkets among the top five losers, weighed on the benchmark FTSE 100 index, which fell nearly 1% to 6,557.52. It was the lowest closing level in nearly six months.

Royal Mail was the best performer on the index, rising 1.9% to 399.10p, after UBS raised its rating on the stock to "neutral" from "sell".

On the currency markets, the pound fell against the dollar after a weak survey of the UK manufacturing sector added to doubts about when the Bank of England might start to raise interest rates.

The pound dipped to a two-week low of $1.6164 against the dollar, before recovering to $1.6214. Against the euro, sterling rose to near a two-year high to close 1.2850 euros. The move comes a day before European Central Bank chief Mario Draghi gives more details on new asset purchase programmes announced last month.