London - Tesco was hit on Monday by broker downgrades ahead of a trading update later in the week, pulling Britain's FTSE 100, which was also dented by signs of weakness in the euro zone economy.
Spain's manufacturing sector contracted for the first time since July, underscoring the fragility of the recovery in the euro zone, Britain's top trading partner.
Comparable data for Britain was due at 11:28 SA time, followed by US numbers at 17:00 SA time.
Although the British economy is showing some signs of improvement, consumer demand remains fragile, pushing retailers into stiff price competition.
Tesco was among the top fallers on the FTSE 100, down 1.8 percent to 342 pence after HSBC downgraded it to underweight saying the company needs to lower margins, while analysts at Goldman Sachs lowered their third quarter earnings estimates for the firm.
“They've got a trading statement out this week so ... given that there have been downgrades I think people are baking in poor numbers,” said Zeg Choudhry, head of equities trading at Northland Capital Partners, highlighting 338 pence as a key support level for the shares.
The world's third-biggest retailer, is expected to slip back to an underlying sales decline in Britain when it publishes quarterly trading on Wednesday.
Broker comment also hit Aberdeen Asset Management, which fell 1.9 percent after being downgraded to 'neutral' by Credit Suisse.
“We believe the shares are now largely factoring in the potential 12 percent FY15 earnings per share accretion from the recently announced SWIP (Scottish Widows Investment Partnership) deal and we are generally less constructive on the underlying flow and margin dynamics,” Credit Suisse said in a note.
The blue-chip FTSE 100 was down 31.45 points or 0.5 percent at 6,619.12 points by 10:38 SA time, testing key technical support levels in the 6,620-6,600 area.
“Breach below this level might trigger further bearishness with the next downside target at the 6,585 level, followed by an important one at the 6,550 level, a move below which might turn the main trend to the downside on the daily chart,” analysts at Guardian Stockbrokers said in a note.
In November, the FTSE posted a drop of 1.2 percent in what proved to be its quietest month so far this year in terms of volumes. - Reuters