Market Report: Gloomy outlook for 2011 sees supermarkets fall

Anxiety over what 2011 will bring for the supermarkets weighed on the sector yesterday, with Morrisons taking the biggest hit after Morgan Stanley said it was "becoming increasingly concerned about [its] prospects".

There was a fall of 3.9p to 267.1p for the Bradford-based company as the broker downgraded its recommendation to "underweight". Morgan Stanley analyst Geoff Ruddell said consensus forecasts that it "will deliver a further 10 per cent profit growth in the coming year... looks far too optimistic to us."

However, Mr Ruddell was cautious about the industry as a whole, saying he was "much less confident about 2011" as Morgan Stanley's rating on the European food retailers was reduced to "in-line" from "attractive".

J Sainsbury, which retreated 4.2p to 380.8p, was the only UK company whose shareholders should be optimistic, he said, asking whether "the time may be approaching when Tesco will need to admit that it is no longer capable of growing earnings at 10-12 per cent per annum".

The UK's biggest supermarket was 5.25p lower at 403.75p, as Evolution Securities also suggested it should reduce its prices. The broker's analysts believe a price war would see Tesco "emerge as a clear winner" and improve its position after it "has lagged in underlying UK sales growth and... failed to regain momentum."

Overall, a late dip left the FTSE 100 79.73 points weaker at 5,976.7, falling back from Tuesday's 31-month high. Disappointment over the latest unemployment numbers and results from Goldman Sachs had an effect, with ETX Capital's Manoj Ladwa noting that "what started off as light profit-taking... turned into a bit of a rout".

In a busy day for results, the top-tier index's pole position was taken by Pearson, which rose 45p to 1,051p following a trading statement in which it increased its profit forecast for last year.

Land Securities made a more modest gain of 4p to 694p despite a positive third-quarter interim management statement. Even though it said the company "remains an appealing long-term story", Panmure Gordon kept its "hold" recommendation on the group, citing its current valuation.

Many of the retailers were in difficulty yesterday, especially Kesa Electricals, which fell 14.8p to 136p on the mid-tier index. The owner of the Comet chain released its third-quarter update in which it said its like-for-like sales had dropped by 7.3 per cent.

Its assertion that the VAT increase had knocked trading since the new year was not welcome news for other high-street chains, and Home Retail and Debenhams slid back 4.3p to 221.2p and 1.75p to 68p respectively.

Meanwhile HMV retreated 0.75p to 25.5p after releasing a statement in which it admitted that "credit insurers are reviewing the level of cover they provide on the group". As a result, it said, there has been a "reduction in the availability of credit insurance to certain of the company's suppliers", although it clarified it has "had no difficulty in obtaining stock".

Takeover chatter pushed Tate & Lyle towards the top of the FTSE 250, closing 26.5p better off at 564.5p, as market gossips became excited over rumours of a potential bid priced between 750p and 775p-a-share. The vague talk centred around possible interest coming from a US company, with both Archer Daniels Midland and Cargill named.

Speculation about a possible approach continued to boost Soco International, as it advanced 5.2p to 370.2p, with Evolution Securities doing little to dampen investors' excitement. The broker said the "best way to monetise [its] Vietnamese assets is through a disposal of the entire company", adding "it could be in everyone's interest... to entertain offers in excess of 400p".

Meanwhile, Charter International was lifted 5.5p to 835p as Panmure analyst Oliver Wynne-James said that the engineering group "is one of the clearest demerger candidates in the... sector". Although he ruled out such a move actually happening, he did say that speculation on the subject could emerge anyway and push its price up.

There was a surge of 12.3p to 189p for William Hill, with the bookmaker revealing its operating profit for the year should come in near the top end of forecasts. JD Wetherspoon was also doing well after its pre-close statement, and the pub group jumped up 23p to 464.7p.

Small-cap group Assura, the primary care property company, was 1.25p stronger at 47.5p as it agreed a £23.8m takeover of sector rival AH Medical Properties (AHMP).

Ashley House, which is the property partner of AHMP and a major shareholder, looks set to be a beneficiary, with the company saying it expects to receive over £4m if all goes to plan. The group, which is listed on the Alternative Investment Market, was bumped up 2p to 29p.

There was a large climb of 133p to 1,683p for the clothing website Asos following a trading statement in which it said overseas sales rose by over 150 per cent in the final quarter of 2010.