Tesco drags FTSE lower as analysts deliver earnings verdict

Reuters - UK Focus

* FTSE 100 index falls 0.3 percent

* Tesco (Xetra: TCO.DE - news) hit by multiple target cuts a day after update

* ITV (LSE: ITV.L - news) special dividend not enough to halt profit-takers

* Diageo (LSE: DGE.L - news) also a drag as it trades ex-div

By Simon Jessop and Atul Prakash

LONDON, Feb 26 (Reuters) - A batch of analyst cuts prompteda rush to the exits for investors in retailer Tesco (Frankfurt: TS3.F - news)that weighed on the blue-chip FTSE 100 on Wednesday,dragging it further away from a recent multi-year high.

Nomura, Oriel, Cantor and Jefferies were among those thatcut ratings or price targets on Tesco, the world's third-largestretailer, a day after it flagged price cuts and scaled back itsoperating margin goal.

Demand to sell out of the stock was strong enough to leaveTesco down 3.9 percent and on course to post its biggest dailyfall since June 2013. There was heavy volume on the stock justshy of its three-month daily average and three times that in thebroader index.

"You have to ask why investors need to be in this stock atthe moment. I would advise caution on the stock," said GrahamJones, analyst at Panmure Gordon. "At least in the next sixmonths, I don't see what's going to change at Tesco to makeinvestors' sentiment more positive."

The scale of the weakness in Tesco weighed on the broaderEuropean retail sector and caused the STOXX Europe 600 Retailindex, down 1.1 percent, to lag sectoral peers.

Tesco's heavy weighting within the FTSE meant it acted as adrag on the parent index and left it down 0.3 percent, or 20.3points, at 6,810.14 points by 1042 GMT, although fund flows intoEurope remain positive and many expect the fresh 14-year closinghigh hit on Monday to be extended in the coming weeks.

"Investors have become cautious as they think the market isdue for a correction after rising too far, too fast. They arewaiting for some catalysts before pushing the FTSE 100 towardsrecord highs," Tom Robertson, senior trader at Accendo Markets.

"If we test 6,850, then we could be set for higher highs andthe next target would be the all time high of 6,950.60. But ifwe fail to break through the 6,850 level in the near-term, themarket would become vulnerable to more profit taking."

Also feeling investors' ire, and leading the FTSE 100fallers in spite of plans to issue a special dividend, wasbroadcaster ITV, down 4.9 percent in volume twice itsthree-month average after less than three hours of trade.

That left the stock on course for its biggest daily fallsince May 2012, with some traders pointing to comments aroundfuture investment as a reason to take profits on a stock thathas been one of the best FTSE performers over 6 months.

"(The) results are all good but the extra investment inprogramming that they have announced today means no upgradeswhich is likely to take the gloss off their performance," anequity sales trader at a UK brokerage firm said.

Compounding the early weakness were falls for Diageo (Berlin: GUI.BE - news)and easyJet, down 1.5 percent and 2.4 percent,respectively, after they began to trade without entitlement tothe latest dividend payout.

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