Leading shares fell on Thursday after a profit warning from Tesco triggered sharp falls in retailers and eclipsed a lift for banks from a successful Spanish debt auction and restructuring at RBS .

The FTSE 100 index <.FTSE> closed down 8.40 points, or 0.2 percent, at 5,662.42, once again missing out in a tilt at the 5,700 level. The day's peak was 5.699.57.

The early euphoria of successful European bond auctions put a floor under the financial sector which set the FTSE roaring higher, but 5,700 seemed too high a price to pay as the jitters from the retail sector brought the bears back into the fray, said Mic Mills, head of electronic trading at ETX Capital.

A raft of trading updates from the UK high street showed consumers facing a bleak economic outlook held on to their cash over Christmas.

Tesco was easily the top blue chip faller, dropping 16 percent to a 33-month low after the world's third-largest retailer warned of minimal profit growth in its 2012/13 year as it invested more in price cuts and its online business to win back sales.

We expected that Tesco's UK performance had been poor over Christmas but had not anticipated just how fundamental a change to strategy it would provoke, said Jonathan Pritchard, retail analyst at Oriel Securities, which cut its rating for Tesco to hold from buy.

Supermarket peer Wm.Morrison and Marks & Spencer , which both posted Christmas trading updates earlier this week, dropped 6.0 and 2.0 percent respectively.

Sainsbury's , which gained after its well-received update on Wednesday, shed 5.4 percent.

Credit Suisse cut its profit forecasts and repeated its underperform rating on Sainsbury's, saying there is still not enough margin/returns progress for us to view the valuation as attractive.

Home Retail was the biggest FTSE 250 <.FTMC> faller - down 4.9 percent - after it warned of a significant full-year dividend cut following more poor sales at its Argos stores.

Ocado defied the retail gloom, leaping 33.5 percent to top the mid cap gainers list after a 16-percent increase in Christmas sales.

Below-forecast U.S. retail sales numbers for December did some damage on Wall Street on Thursday, together with initial weekly jobless claims at a six-week high. U.S. blue chips <.DJI> were down 0.3 percent by London's close.


RBS was the top blue chip riser, up 5.6 percent, as analysts applauded the lender's plan to cull investment bank jobs and sell or shut equities and advisory businesses.

British banks <.FTNMX8350> rallied overall as euro zone debt fears eased slightly after Spain and Italy carried out solid bond auctions at sharply lower borrowing costs.

HSBC bucked the sector trend, shedding 0.8 percent as BofA Merrill Lynch downgraded its rating to underperform from neutral on concerns revenues will miss expectations.

Miners <.FTNMX1770> were in demand, with Rio Tinto up 1.7 percent as copper prices hit their highest level in more than a month, helped by the euro zone bond auctions, which improved demand considerations.

Integrated oils <.FTNMX0530> were weak, laid low by big falls from Royal Dutch Shell , down 2.1 percent, as Goldman Sachs made cuts to its EPS estimates, amid talk the firm itself was guiding down earnings estimates.

We lower our Royal Dutch Shell earnings estimates by 7 percent in 2011, 4 percent in 2012 and 3 percent in 2013 owing to a worse than expected deterioration of the downstream environment globally, lower European gas volumes and higher depreciation charges, Goldman Sachs said in a note.