January 08, 2008	Tuesday	Zilhaj 28, 1428

LONDON, Jan 7: Shares in UK retailers extended their deep losses on Monday, with number three supermarket group J. Sainsbury and leading clothing retailer Marks & Spencer particularly hard hit by talk of weak trading.

Updates from leading retailers released in the past two weeks -- the first confirmation of shopping patterns during Christmas -- have painted a gloomy picture of consumer spending at some stores, with rising mortgage interest rates and weaker housing markets apparently depressing shopper sentiment.

Dresdner Kleinwort Wasserstein analysts said on Monday they expected mounting inflation in most markets to remain a strong fourth-quarter feature for food retailers, though they suspected price competition would continue.

For non-food sales, they predicted the picture would be muted rather than disastrous, but this is unlikely to distract from what is set to be a very tough first half, they said.

Shares in Sainsbury, the subject of bid speculation for much of 2007, shed more than 6 per cent on Monday and led the European index of retailers lower after a report in The Times that it had missed internal targets over Christmas.

Marks & Spencer, Britain’s leading apparel retailer and a merchant of high-end prepared foods, also traded nearly 3 per cent lower on concerns over its Christmas performance, traders said.

Electricals stores DSG International and Kesa Electricals also moved lower. DSGI fell 4.2 per cent, and Kesa 3.3 per cent. Kingfisher, owner of B&Q, fell 3.4 per cent.

Kingfisher is probably a special problem because people think that the housing market in the UK will be melting down, one trader said.

Five-year CDS on M&S widened 15 basis points to 92.5 basis points, a trader said. Sainsbury’s and Kingfisher’s widened 10 basis points to 82.5 and 200 points, respectively.

Marks & Spencer, a sector bellwether, reports its third quarter trading update on Jan. 9, and in the light of profit warnings from some retailers including DSGI last week, several analysts have lowered their expectations.

Citigroup is now expecting Marks & Spencer to report flat like-for-like third-quarter sales on Wednesday, with a 1.3 per cent rise in general merchandise and a 1.5 per cent fall in food. Back in November, it had predicted 2.2 per cent like-for-like growth for the group.

Virtually all data points suggest that UK clothing in particular has slowed sharply, and has not had the ‘get out of jail card’ of a strong finish into Christmas, Citigroup analyst Bruce Hubbard said in a note published on Monday.

Oriel Securities analyst Jonathan Pritchard said Sainsbury’s was the UK food retail stock most at risk from weak trading, but he thought the sector would hit same-store sales targets.

Fears of a possible US recession, fuelled by weak jobs data on Friday, also seeped into continental Europe on Monday, with shares in Belgian supermarket chain Delhaize falling to their lowest level since July 2006.

Delhaize, which generates about 80 per cent of its revenue in the United States, was the weakest stock in Belgium, falling more than 5 per cent to 54.05 euros.

Dresdner analysts also expected Germany’s Metro to detail slowing like-for-like growth in German and Western European markets when it reports its fourth quarter.—Reuters