Gloomy retail outlook fails to dampen City sentiment

There was further stock market pain for retailers yesterday after Marks & Spencer sent a chill through the sector with warnings over the trading outlook.

M&S reported an 8 per cent rise in like-for-like sales over the festive period, but this was slightly below City expectations and combined with cautious comments from boss Sir Stuart Rose to hit shares hard.

The wider London market held steady, with the FTSE 100 Index closing up 7.54 points at 5530.04.

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In the US, the rate of job losses at private employers slowed in December and the services sector showed marginal growth, according to reports which underlined the tentative nature of the economic recovery.

In the struggling housing sector, demand for mortgages held near six-month lows last week, according to a separate report.

The Institute for Supply Management said its services index rose to 50.1 in December, reaching above the 50 mark separating expansion from contraction for the third time in four months. The reading was above November's 48.7 but below economists' median forecast of 50.5.

The pound shrugged off fears surrounding a potential call for a secret ballot to oust Prime Minister Gordon Brown, with sterling ahead 0.2 per cent to 1.60 US dollars and down marginally at 1.11 euros.

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Retailers were the stocks in focus on London's Footsie yesterday after the M&S update and as the snow promised to keep shoppers away from Britain's high streets.

M&S shares, which have risen 10 per cent since the end of October, slid 7 per cent to close 271/2p down at 3773/8p as the retailer's executive chairman Sir Stuart warned that trading will remain challenging this year.

Sales also disappointed, despite returning to positive like-for-like growth for the first time in more than two years and even though the company pointed out that the period excluded the first day of its post-Christmas sales.

A number of other retailers were also under pressure. Homebase and Argos owner Home Retail Group declined 63/8p to 2831/2p, while B&Q firm Kingfisher dropped 33/8p to 230p and supermarket giant Tesco slipped 83/8p to 412p.

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Sainsbury's fell 17/8p to 318p ahead of a trading update today. Next, which triggered the retail sell-off on Tuesday following its own cautious comments about 2010 trading, rose 1p to 2101p.

In the FTSE 250 Index, M&S food supplier Northern Foods tracked the retailer lower with a fall of 27/8p to 69p.

Country Life and Utterly Butterly maker Dairy Crest also dropped 183/4p to 3551/4p.

On the risers' board, Royal Bank of Scotland maintained its recent strong run with a gain of 11/4p to 365/8p.

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With a recent broker upgrade boosting sentiment, Barclays added 87/8p to 307p and Lloyds Banking Group advanced 1/2p to 545/8p.

There was some cheer in the retail sector after Majestic Wine delivered a trading update ahead of expectations.

Majestic Wine was 6 per cent higher, up 121/2p to 2271/2p, after it said a recent adjustment in its minimum purchase policy had boosted Christmas sales.

In September, Majestic lowered the limit from 12 to six bottles in an attempt to broaden its customer base – particularly in towns and cities.

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The biggest risers were Autonomy ahead 90p to 1560p, Wolseley advanced 61p to 1361p, Royal Bank of Scotland, and Xstrata closed 41p higher at 1229p.

The four biggest fallers were Marks & Spencer, British Land off 121/8p to 4577/8p, Petrofac slipped 26p to 1005p and Segro fell 81/2p to stand at 3433/8p.