By Toni Vorobyova
LONDON (Reuters) - The FTSE 100 slipped to a three-month low on Wednesday, with retailer Tesco falling most sharply after a weak trading update and with broader sentiment weighed down by concerns over a continued U.S. government shutdown.
Tesco, Britain's biggest grocer, fell 3.7 percent to top the FTSE 100's decliners' list after reporting flat quarterly sales in its home market, as 1 billion pounds ($1.62 billion) of investment failed to help.
"That's the issue that all the consumer-facing companies are facing - inflation is X percent, wage growth is X minus 1 or 2 percent and on that basis it's not surprising that consumers will continue to struggle," said Tim Ress, UK fund manager at Insight Investment, who prefers financial stocks over retail.
The FTSE's decline was fairly broad though, with only around one in 10 blue-chips in the black, as investors fretted about a continued partial shutdown of the U.S. government and the politicians' ability to reach an agreement on raising the debt ceiling this month in order to avoid a sovereign default.
"The debt ceiling is more of a problem (than the shutdown) because if they don't reach an agreement to increase the debt ceiling that will be damaging not only for the U.S. economy but also for recovery globally," said Stephane Ekolo, chief European strategist at Market Securities.
The British blue-chip index - whose companies make nearly a quarter of their sales in the United States - fell as far as to 6,386.18 points, its lowest level since July. By 1039 GMT, it had recovered a little to trade down 54.48 points - or 0.8 percent - at 6,405.53, hovering around a key technical support offered by the 200-day moving average.
The FTSE 100 has lagged its European peers over the past three months, gaining only around 6 percent from a late June trough compared to a rally of nearly 17 percent on the EuroSTOXX 50.
Analysts blame the lag on the relatively defensive nature of the British benchmark - which limits its sensitivity to economic upswings - and to the international focus of its blue chips, which means it is more likely to fall on weak Chinese data than rally on strong UK numbers.
On Wednesday, though, the euro zone stocks benefited more than their British peers from signs of improvement in the political situation in Italy, where Prime Minister Enrico Letta appeared on course to win a confidence vote.
(Additional Reporting By Atul Prakash; Editing by Pravin Char)