LONDON MARKETS: Supermarkets Sainsbury, Tesco Under Pressure In London

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- In a sour day for U.K. supermarket chains, shares of J Sainsbury PLC sank Wednesday, with investors responding to a sales decrease, while rival Tesco PLC was lower as an investigation into its accounting practices got underway.

Meanwhile, the U.K. joined the eurozone in receiving lackluster data about the manufacturing sector.

The benchmark FTSE 100 fell 1% to 6,557.52, as part of a broader market selloff in Europe. On Tuesday, the index closed the third quarter with a 1.8% loss.

Bucking Wednesday's downtrend were shares of Royal Mail PLC , higher by 1.9% after an upgrade to neutral from sell at UBS.

Strain on supermarkets: Sainsbury shares dropped 7% as the company said quarterly same-store sales to Sept. 27 declined 2.8%, excluding fuel, the third consecutive quarterly fall.

"These conditions are likely to persist for the foreseeable future and we now expect our like-for-like sales in the second half of the year to be similar to the first half," Sainsbury's chief executive, Mike Coupe, said in a statement.

In a conference call, Coupe said Sainsbury will provide a more complete view of its thinking around dividends and other strategic plans on Nov. 12.

A "much more aggressive pricing policy" launched by Sainsbury "makes sense on a medium-term view but will be painful short-term," said analysts at Societe General in a note about the European consumer staples sector. They said they view Sainsbury as being in better shape than rivals.

Shares of competitor Wm Morrison Supermarkets PLC closed lower by 2.7%.

Meanwhile, shares of Tesco lost 3.2% after the U.K. Financial Conduct Authority said it launched a full investigation into an accounting error by the retailer. In September, Tesco suspended four senior executives and began looking into the 250 million pound ($405.7 million) overstatement of its first-half profit forecast.

Data: The pound (GBPUSD) dropped below $1.26 against the dollar after Markit and Chartered Institute of Purchasing and Supply said their purchasing managers index for the U.K. manufacturing sector slipped in September. The reading of 51.6 marked the slowest pace of growth in 17 months. It was also below expectations of an increase to 53.

"The continued weakness in eurozone countries and the euro-sterling exchange rate appeared to particularly undermine growth in September, and resulted in near stagnation in new manufacturing orders," said CIPS Group Chief Executive David Noble in Wednesday's report.

Sterling later recovered from session lows, returning to late Tuesday levels around $1.6213.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires