LONDON MARKETS: U.K. Stocks End Lower, As Many Retailers Drop

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- U.K. stocks ended lower on Thursday, with many retailers posting losses following downbeat news about Christmas sales, while the Bank of England's monetary policy committee kept interest rates and quantitative easing on hold.

The U.K.'s FTSE 100 index fell 0.5% to end at 6,691.34.

The Bank of England's monetary policy committee left its interest rates and quantitative easing policies on hold. Speculation had been rising that a fall in unemployment could trigger a change in the bank's forward guidance, something that has fueled gains for the British pound.

The European Central Bank also left policy unchanged, with its president Mario Draghi detailing the bank's commitment to its low-rate policies.

Retailers commanded attention on Thursday. Shares of Wm. Morrison Supermarkets PLC sank 7.8% after the retailer became the latest to report a challenging Christmas trading performance. It said full-year underlying profit would be at the bottom of the range of current market forecasts.

Tesco PLC dropped 1.2% after the company said comparable U.K. sales fell by 2.4% in the six weeks to January. J. Sainsbury PLC shares dropped 2.4% and Next PLC fell 1.9%.

"Putting the disappointing numbers aside, the macro improvement in the U.K. economy clearly isn't being reflected for the consumers who remain cash-strapped as wage rises are not up with inflation," said Joe Rundle, head of trading at ETX Capital. "Shoppers in the U.K. are now more sensible in the way they purchase their food items -- either picking the higher end, [Waitrose for example and even Sainsbury's to some degree] or the low-end [Aldi and Lidl -- both reporting strong Christmas trading numbers]."

"For M&S, Tesco and Wm Morrison, it's the outlook for these retailers which worries the market -- unlike Waitrose and Sainsbury's, these three have questionable strategies which are now under intense scrutiny by shareholders and the market alike," Rundle said in a note.

Marks & Spencer Group PLC bucked the trend for retailers, notching a 3.6% gain. The stock was the top riser for the FTSE 100. The retailer said it saw an improved performance for general merchandise over the holidays, with U.K. comparable sales down 0.2% in the third quarter, but up 1% in the Christmas trading period. Still, the quarterly performance fell below expectations, said Marks & Spencer.

ARM Holdings PLC (ARMHY) was cut to hold from buy at Deutsche Bank, which says it's waiting for better entry points for the chip designer. Shares of the heavyweight sank 6.5%.

Support came from Tullow Oil PLC , which gained 3.1% after analysts rated the stock a buy, according to news reports. CRH PLC gained 2.4% after it got a buy rating from Deutsche Bank, according to news reports.

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