By Francesco Canepa
LONDON (Reuters) - British shares fell for a fifth straight session on Thursday, dragged down by supermarket stocks after WM Morrison cut its profit outlook, as well as by escalating tensions between Russia and the West over Ukraine.
Morrison's was the worst performer on the FTSE 100 index, plunging 11.9 percent, and its revised outlook triggered a sell-off among rival food retailers, with Sainsbury's tumbling 8.5 percent and Tesco and Marks & Spencer falling by 5 percent and 3.1 percent respectively.
Morrison's said it would spend 1 billion pounds ($1.66 billion) on price cuts over three years. That fuelled concerns about pressure on margins in the sector, which faces stiff competition from discount chains such as Lidl and Aldi.
"Everyone feels Morrison's and some of the other supermarkets have to take on the Aldis and Lidls of this world and ... get their prices down, and that's not good for profits," said Mike Franklin, investment strategist at Beaufort Securities. "I'd wait a bit for the food retailers to get out of this particular patch (before considering buying)."
Despite signs that Britain's economic recovery is gaining momentum, profit worries have kept investors cautious about food retailers. They have preferred other sectors exposed to the UK economy, such as general retailers or house builders.
That continued on Thursday. Shares in Home Retail Group jumped 5 percent after the owner of retailers Argos and Homebase said annual profit would exceed the top end of market forecasts. Kingfisher, Europe's biggest home-improvement retailer, rose 1.1 percent.
A Datastream index of UK food retail stocks fell 5 percent between the start of the year and March 12, underperforming a 10 percent rise for general retailers. Food retailers were left trading at a 24 percent discount to general retailers based on their price-to-earnings ratios, the widest gap since 1999.
"If you wanted to pick up something relatively cheaply and you're prepared to hold on to it for some time, then they (UK foods retailers) may be quite attractive, but it may take some months to see the benefit of that," Beaufort's Franklin said.
Trading volumes in Morrison's and Sainsbury's were six and seven times their averages for the past three months, respectively. The volume on FTSE stocks as a whole was 30 percent above the index's average.
The blue-chip FTSE 100 index fell 1 percent to 6,553.78 points, hitting a new one-month low on growing concerns about a conflict in the Ukraine and jitters in the Chinese credit market.
The FTSE extended losses in late trade as Ukraine's acting president said that Russian forces were concentrated on the border "ready to invade", although he believed international efforts could end Moscow's "aggression" and avert the risk of war.
Also hitting stocks and especially those of mining companies, Chinese banking and industry sources told Reuters that banks in the world's No. 2 economy and top metals' consumer have cut lending in some sectors by as much as 20 percent.
The late sell-off dragged the FTSE down through chart support at 6,580, which corresponds to its 200-day moving average, triggering automated sell orders from technical traders.
"Geopolitical risk (is) overtaking market technicals," Ed Woolfitt, head of sales at Galvan, said.
The FTSE 100 rose 14.4 percent in 2013, its best annual gain since 2009. It reached its highest level in around 13 years in early January this year.
"Investors are running for cover at the moment. I could see the FTSE falling down to the 6,500-point level soon," said Berkeley Futures associate director Richard Griffiths.
(Additional reporting by Sudip Kar-Gupta; Editing by Susan Fenton)