Tesco leads European shares lower

European shares fell on Thursday after a profit warning from retail heavyweight Tesco and weak US retail and labour data more than offset relief from successful Spanish and Italian debt auctions. The FTSEurofirst 300 index of top European shares fell 0.3 percent to close at 1,018.78 points after hitting a five-month high of 1,031.08 earlier in the session.
Trading volumes were high, at 119 percent of the index's 90-day average. Tesco fell 16 percent after issuing its first profit warning in living memory, and on worries the world's third-biggest retailer would launch a price war to fight back from its worst Christmas in decades. The European retail index was the top sectoral decliner, down 5.7 percent.
"When companies that have previously been at the top of their game start to disappoint, investors run scared for a while. The issue is whether this is destabilising for the sector as a whole," said Richard Jeffrey, chief investment officer at Cazenove Capital Management. Adding to the gloom, US retail sales rose at the weakest pace in seven months in December and first-time claims for jobless benefits moved higher last week, signs the economic recovery remains shaky despite a pick-up in growth. Earlier, Spain and Italy spread cheer through euro zone markets with solid debt auctions at sharply lower borrowing costs in 2012's first real test of appetite for debt from the euro zone's bruised periphery.
Investors awaited an Italian bond auction on Friday, which could push share prices higher if it, too, proved successful, analysts said. Across Europe, Britain's FTSE 100 fell 0.2 percent, Germany's DAX rose 0.4 percent and France's CAC-40 fell 0.2 percent. Italy's FTSE MIB rose 2.1 percent and Spain's IBEX was flat. The STOXX Europe 600 Euro Zone Banking index, advanced 2.5 percent, with Italy's UniCredit gaining 13.5 percent, following recent weakness after a rights issue to shore up its balance sheet had to be massively discounted.
Mining stocks also gained, with the STOXX Europe 600 Basic Resources Index up 0.5 percent, as copper prices were boosted by the dollar's fall against the euro. The European Central Bank maintained rates at 1 percent, but left the door open for further cuts. The Bank of England also left its key interest rate unchanged, at a record low of 0.5 percent.