Vodafone led the FTSE 100 down on worries over earlier than expected regulatory price cuts across Europe.

Morgan Stanley cut its rating on the mobile phone giant from overweight to underweight and lowered its target price by 21 per cent to 170p.

It said that Vodafone was heavily exposed to a likely decision by the European Commission to bring forward a recommendation to aggressively lower Mobile Termination Rates — the charge for calling a mobile from a landline or from a rival mobile operator.

"The cuts are likely to be a significant drag on sector estimates from 2009 onwards," Nick Delfas, telecoms analyst at Morgan Stanley, said. "We expect the European Commission to bring forward a Recommendation to bring Mobile Termination Rates down to costs, and level the playing field for challenger operators. We downgrade Vodafone to Underweight as one of the most exposed to this development, and upgrade BT to Equal-weight. While facing its own challenges, it has already de-rated more significantly."

Morgan Stanley said that the falls in share prices of about 20 per cent were justified by worries about the maturity of text message demand and rising of mobile broadband as well as general weakening of the global economy.

Vodafone fell 6.5p to 150.5p, accounting for a big share of the slump in the FTSE 100, down 57.2 at 5635.7.

But it was not the worst performer, that was ITV, down 7 per cent at 63.2p after UBS downgraded to “sell” from “neutral” and lowered its price target to 60p from 70p.

The broker said that television advertising market was slowing down fast and gave warning that ITV is trading on a higher earnings per share multiple than its peers, even though it has higher debt.

Tesco was down 3.7 per cent at 376p after a director revealed on his blog that it had shelved the roll out of its Fresh & Easy stores in the US in the latest sign that it is not doing as well as hoped.

Broker Panmure Gordon pointed out that this pause had been planned and the company will still open the 150 Fresh & Easy stores that it said it would this year, so public targets remain unchanged.

The London Stock Exchange, buoyed by announcing a share buyback programme last week, succumbed to profit taking, down 5 per cent at £12 after Alliance Bernstein reiterated its underperform and £12 target and warned that the imminent arrival of rival trading platform BATS to Europe would cut its market share. BATS is prepared to discount heavily to win market share, it pointed out.

Friends Provident was the top gainer, up 3.25 per cent to 124p after it revealed it had received a 150p approach from JC Flowers which it rejected as too low.

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