NEW YORK - Supermarket operator Kroger Co posted quarterly profit far below expectations and slashed its full-year forecast amid intense competition, and its shares fell 14 percent.

Kroger's results weighed on the shares of its rivals. Safeway Inc was down 8.1 percent in early trade, while Supervalu Inc fell 7.6 percent and Whole Foods Market Inc slipped 2.7 percent. Wal-Mart Stores Inc , the largest seller of groceries in the United States, lost 1.3 percent.

Elsewhere, shares of McDonald's Corp fell 2.3 percent after the fast-food giant posted its second month in a row of negative same-restaurant sales in the United States. Falling grocery prices, a price war and high unemployment hurt the restaurant chain.

Lower fuel prices squeezed gross margins at Kroger, the largest U.S. grocery chain, and fierce competition prompted the company to further lower its grocery prices, reducing its margins, excluding fuel, by 10.9 percentage points during the quarter.

In the near term, our financial results are being pressured by factors including persistent deflation, unusually intense competition and the cautious mind-set of customers, Chief Executive David Dillon said in a statement.

Kroger said it expects these difficult conditions to persist, prompting it to lower its forecasts for full-year profit and identical store sales -- sales at supermarkets open without expansion or relocation for five full quarters.

But the company sees some relief in sight, and said it expects downward pressure on prices to moderate in fiscal 2010.

Given an environment that Dillon said was more challenging than we anticipated, Kroger now expects to earn $1.60 to $1.70 per share this year, including charges recorded in the third quarter, down from its prior forecast of $1.90 to $2.00. Analysts' average forecast was $1.94, according to Thomson Reuters I/B/E/S.

The company now expects full-year sales at identical supermarkets to rise between 2 percent and 2.5 percent, excluding fuel.

The Cincinnati-based company, which operates stores under its own name as well as Ralphs, King Soopers, Fry's and Food 4 Less, reported a net loss of $874.9 million, or $1.35 per share, for the third quarter ended November 7, while it had a profit of $237.7 million, or 36 cents per share, a year earlier.

Excluding an impairment charge stemming from a write-down

at its Ralphs division, Kroger earned 27 cents per share. Analysts, on average, expected a profit of 37 cents per share, according to Thomson Reuters I/B/E/S.

Total sales at Kroger, which also runs the Littman and Barclay jewelry chains, edged up 0.3 percent to $17.67 billion, despite falling prices for food and fuel.

Excluding fuel, Kroger's overall sales rose 2.2 percent.

The economic downturn has strengthened competition among grocery sellers.

Kroger shares were down $3.22 to $19.63 in morning trade on the New York Stock Exchange.

(Reporting by Phil Wahba and Lisa Baertlein, editing by Dave Zimmerman and John Wallace)