The FTSE 100 of Britain's leading shares ended down in thin trading on Tuesday as Tesco and a German investor confidence survey dragged the index deep into the red. The FTSE 100 closed 53.3 points, or 0.8 percent, down at 6,650.2.
The German ZEW survey showed economic sentiment in the eurozone's biggest economy fell in June after rising for six months. While this did not materially change near-term expectations for a eurozone rate hike this year, the surprise drop dented investors' mood.
The biggest decliner of the day was the world's fifth largest retailer, Tesco, which shed 4.9 percent after it reported a slowdown in its core UK sales growth in the first quarter and said it expected a "tougher year" after UK interest rate hikes made consumers wary.
The figures, at the lower end of analysts' expectations, showed a 4.7 percent rise in UK like-for-like sales excluding fuel in the 13 weeks to May 26, a slowdown from 5.8 percent growth in the previous quarter. The retailer dragged down other stocks in the sector, with Marks & Spencer down 2.6 percent, Kingfisher falling 1.9 percent and Next dropping 1.2 percent.
"It's been rather quiet overall. There's been nothing on the UK economic calendar to provide any direction, whilst Wall Street has also opened softer after the release of some barely improved housing data," said Jimmy Yates, a trader at CMC Markets.
"Attention is now shifting towards the Bank of England's meeting minutes which are due for release tomorrow morning and any hawkish tone here could easily end up weighing further on the FTSE."
In other individual shares, British Airways lost 2.6 percent after low-cost carrier Ryanair said it would put 3 million seats up for sale at 10 pounds each during July, August and September. British publisher Pearson dipped 2.3 percent as talks with General Electric about challenging News Corp's $5 billion bid for Dow Jones & Co were ongoing, but it was unclear whether they would lead to an offer, a source familiar with the situation said on Monday.
Pearson also said it was considering its options for French newspaper Les Echos, including a possible sale and journalists at the paper went on strike over the issue. Vodafone Group fell 1.9 percent after Randall Stephenson, AT&T's new chief executive, dismissed speculation that the US firm was planning a bid for the British mobile phone company, according to the Financial Times.
Stephenson also said it was unlikely the world's largest telecoms company by market capitalisation would seek to buy former European telecoms monopolies, saying that its aborted interest in Telecom Italia was "opportunistic".
Cadbury Schweppes, the world's largest confectionery group, dipped 0.9 percent after it revealed plans to cut 7,500 jobs and close 10 plants as it seeks to match the profitability of its US rivals. Top of the FTSE 100 leaderboard was Capita Group, which tacked on 1.7 percent and touched an all-time high after Citigroup upgraded Britain's biggest back-office firm to "buy".
Oil stocks provided further support as London Brent crude eased to near $72 a barrel after hitting a 10-month high the previous session. BP was flat, while rival Royal Dutch Shell was up 0.5 percent. Imperial Chemical Industries rose 0.7 percent, having soared on Monday after receiving an approach from Dutch group Akzo Nobel.
"It's like summer's started early this year," said Adam Steiner, head of research at SVG Advisers. "My view is that now interest rates are getting close to normal historical levels, markets are starting to behave like normal historical markets."