By Sarah Turner
LONDON (Dow Jones)--London shares finished sharply lower on
Tuesday, as worries about the state of government finances were
thrown into the spotlight by credit rating downgrades for Dubai and
Greece.
The U.K. FTSE 100 Index ended down 1.7% at 5,223.13. Other
European shares ended the session with losses.
Banks dropped in London, with Royal Bank of Scotland shares down
7.7%, Barclays (BCS) down 3.2% and HSBC Holdings (HBC) down
2.5%.
British lenders are seen as some of the firms most exposed in
the Europe to the debt woes of Dubai that have roiled global
markets for almost two weeks.
On Tuesday, Moody's Investors Service downgraded all six Dubai
government-related issuers and Morgan Stanley estimated in a report
that the debt of the Dubai government-related companies exceeds the
emirate's gross domestic product.
Credit agency downgrades also spread to Europe on Tuesday, with
Fitch Ratings cutting Greece's credit rating to BBB+ from A-
Tuesday, citing worries over the country's medium-term outlook for
public finances.
Meanwhile, Moody's Investor Services warned that the United
States and Great Britain may test the boundaries of their Aaa
sovereign ratings due to deteriorating public finances.
Both countries, however, "display an adequate reaction capacity
to rise to the challenge and rebound," wrote Pierre Cailleteau,
managing director of Moody's sovereign risk group.
Turning to corporate updates, Tesco traded down 2.3% at 425
pence after the supermarket giant reported a 2.8% rise in U.K.
comparable sales. That was below the 3.1% comparable-sales increase
recorded in the second quarter.
"After a good run in the shares and on the back of weaker
British Retail Consortium figures in the U.K. today, we'd expect
Tesco's shares to pull back a touch," said analysts at Bank of
America Merrill Lynch.
They estimate that comparable U.K. food sales growth slowed to
1.5% in November from 2.3% in October. Overall U.K. same-store
retail sales values rose 1.8% in November from the same month last
year, the British Retail Consortium reported.
Tesco rivals J Sainsbury , down 1.2%, and William Morrison ,
down 0.1%, were also a bit weaker on Tuesday.
Tesco's 2.8% growth in comparable sales excluding fuel and sales
tax "was modestly below our and consensus expectations of 3%,"
added analysts at Bernstein.
"However, in our view this is still a robust performance, in the
context of moderating inflation and sharper slowdowns recently
reported by U.K. competitors, albeit for slightly different
reporting dates," the broker added.
Tesco said that an improving positive comparable-sales trend in
non-food is continuing, with particularly strong growth in toys,
electrical and entertainment.
But Tesco's growth in non-food sales could be making the
environment more difficult for other retailers.
Video-games retailer Game Group saw its shares drop 19.5%
outside the top index on Tuesday after it reported that 18-week
comparable sales fell 13.9%.
"We have seen strong competition in all of the markets that we
operate in. In the U.K., in particular, we have seen significant
pricing activity from the supermarkets," the firm said.
Services Desk; Dow Jones Newswires; +44-20-7842-9319/9274