Britain's top shares slipped on Monday as grim trading news from food retailer J. Sainsbury and the threat that record high oil prices will eat into corporate profits combined to pull the market further back from last week's 28-month peak.
Fixed-line operator BT Group also led a retreat by telecoms stocks after analysts at Credit Suisse First Boston trimmed earnings forecasts for the company, citing concern about its broadband growth outlooks. Dealers said buyers were also lured away from the sector by Germany's sale of a stake worth up to 4 billion euros in rival Deutsche Telekom and BT shares closed down 2.2 percent.
The FTSE 100 share index closed down 13.4 points at 4,685.5, near the bottom of the day's narrow 23-point trading range. US shares were slightly higher in early action, but the closure of some US markets for a holiday kept trading light on both sides of the Atlantic. Volume in London was only 1.8 billion shares.
"The market had run up as people believed we were nearer a peak in (interest) rates in the UK and maybe US rates would not go up as much as had been expected, but with the oil price reaching new highs on an almost daily basis it's brought things to a halt," said Derek Mitchell, director of UK equities at F&C Asset Management.
Sainsbury shares dipped 0.8 percent after Britain's third-biggest grocer, which is struggling to compete with rivals, said it expected first-half profits to slump. Dealers said the share-price drop was limited by the expectation that trading had been poor, coupled with speculation that the retailer's problems and a possible cut in dividend increased the chance it could be a takeover target.
"Sainsbury is suffering death by a thousand price cuts," Richard Ratner, analyst at brokerage Seymour Pierce, said in a research note. "On trading grounds the company is being 'killed' by Tesco and Asda and Morrison is likely to join in once it has sorted out Safeway."
Meanwhile electronics retailer Dixons shed 1.6 percent, knocked after Korea's LG.Philips warned that consumers are not buying expensive flat-screen televisions.
High oil prices continued to undermine the broader market, as London Brent crude futures rallied above $50 for the first time. Heavy users of fuel were most affected, with chemicals firms ICI and BOC each down about 1.5 percent.
Economic data showing the high oil price fuelled a higher-than-expected rise in the cost of goods leaving UK factories last month also suggested that inflationary pressures are building and added some support to the argument interest rates should be raised again this year.
But tobacco firm Gallaher added 1.5 percent as speculation resurfaced that Japan Tobacco may be eying it as a possible target. The Times newspaper said the Japanese firm did not rule out such a move and would like to improve profits in the UK. Gallaher declined to comment.
Media stocks handed back some of their recent gains and technology stocks were unsettled after Wolfson Microelectronics plunged 38 percent after it scaled down its guidance for second-half revenues, blaming slowing demand in some key markets. Mid-cap tech firms CSR and ARM Holdings were down 4.8 percent and 2 percent, respectively.