Shares in Tesco came under pressure yesterday after analysts at Société Générale said that the supermarket giant had lost its safe-haven status.

The broker said that the supermarket group faced a weakening UK grocery market, with the ebb tide of easing inflation set to reveal poor underlying volumes, given that its sales growth had become increasingly dependent on high food price inflation.

SocGen said that inflation in the first half of the financial year 2005-06 was sharply negative with all of the supermarket’s 6.7 per cent like-for-like sales growth driven by volumes, whereas three years on the 3.7 per cent growth of the first six months this year was entirely driven by inflation, with volumes broadly flat.

The broker added that food price inflation had peaked in July and is set to fall, meaning Tesco’s next few sales growth announcements were likely to be sharply lower.

The broker also highlighted Tesco’s problems abroad, noting its exposure to foreign mortgage debt in Poland, austerity measures in Hungary and a likely fall in consumer spending in South Korea in response to a slowing export driven economy.

It concluded that it sees no prospects for positive news from Tesco for “some time to come” and that poor news from a stock seen as safe will be severely punished. Société Générale subsequently downgraded its rating on the stock to “sell” from “hold” and Tesco’s shares fell almost 2 per cent, down 6.7p to 332.7p.

Overall, the FTSE 100 extended last week’s gains rising over 1.5 per cent, up 65.94 points to 4,443.28.

Mining stocks continued their recent recovery, boosted by rising metals prices and favourable currencies. Kazakhmys, the Kazakh copper miner, led the index rising over 18 per cent, up 52¼p to 337¾p. Eurasian Natural Resources gained 40p to 349¼p and Xstrata put on 109p to £11.64.

Barclays, down 7.4p to 171½p, was among the big fallers after several brokers downgraded the bank after its fundraising with Middle Eastern investors. Merrill Lynch estimated its refusal to seek a UK Government bailout may cost existing shareholders £3.2 billion. It said that the Qatar and Abu Dhabi fundraising had no clawback for the company on convertible shares, included expensive warrants and fees, and would lead to a lengthy period of interest payments. Merrill cut its price target on Barclays shares from 235p to 204p. UBS cuts its target from 220p to 170p and Deutsche Bank cut its target from 310p to 290p.

Royal Bank of Scotland also had a bad day, falling 2.3p to 65.2p, after reports that it would unveil another set of massive losses from its exposure to US sub-prime mortgages.

Vodafone fell 2.6p to 116½p amid market talk that the telecoms giant may be guiding analyst expectations lower. Sentiment towards the group was also hit by the fallout from BT’s profits warning on Friday.

Housebuilders rallied as hopes of an interest rate cut grew. Taylor Wimpey, up 3¾p to 13¾p, led the second string, with Barratt Developments gaining 9p to 86p and Persimmon adding 20¾p to 320¾p.

— New York: Stocks ended little changed, despite a thaw in the credit markets, as investors did not commit themselves before the presidential election. The Dow Jones industrial average closed down 5.18 points at 9319.83.

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