London close: Stocks erase gains, Tesco falls 16%

Gains were pared in afternoon trade on Thursday following a poor start on Wall Street, meaning that the FTSE 100 finished in the red for the second day in a row. It was a busy day on the corporate news front, with Tesco and RBS grabbing the headlines, while central banks did what was expected and kept rates on hold.The Monetary Policy Committee of the Bank of England maintained its policy decision from last month with the Bank Rate being held at 0.5% and asset purchases at £275bn. However, Barclays Capital analyst Blerina Uruci said: "We believe there remains a strong bias to loosen policy...and expect the committee to announce a further expansion of asset purchases in February."The European Central Bank (ECB) too decided to keep its key official lending rate unchanged, at 1.00%. In the press conference that followed today's monetary policy meeting, ECB President Mario Draghi announced that the decision to maintain rates was unanimous.The Italian and Spanish debt auctions provided a bit of a spark earlier in the day after both nations saw solid demand and a fall in yields. However, comments by a Fitch official weighed on sentiment late on. The ratings agency's head of sovereign ratings, David Riley, said in an interview with Reuters that there is a "material risk" of a downgrade to Italy's credit rating by the end of January. "We are reviewing the situation. We're looking at the information and developments, so it's not a foregone conclusion ... but there is a significant risk that Italy could be downgraded," he said.Meanwhile, US benchmarks opened lower in New York after US jobless claims and retail sales disappointed.DISAPPOINTMENT FOR UK RETAILERS Supermarket giant Tesco's gloomy Christmas trading update seemed to spread fears across the sector with food and drug retailers falling by an average 12% today. Tesco, for its part, dropped 16%.'Must do better' was the theme of the firm's Christmas trading statement, as it saw the like-for-like (LFL) sales performance in its home market fall below expectations, prompting the company to advise full-year trading profit growth will be around the low end of the range of analysts' expectations. Rival chains Morrison and Sainsbury also took a tumble.Home Retail dropped after reporting that LFL sales figures at its catalogue shopping division Argos fell 8.8% in the last 18 weeks of 2011.Cash and carry operator Booker fell despite seeing LFL sales rise 6.7% in the 16 weeks to December 30th, while chocolate retailer Thorntons soured after it reported a weaker than expected 0.6% rise in total sales over the important Christmas trading period. However, FTSE 250 online grocer Ocado bucked the sector trend to soar over 30% after enjoying a festive surge with gross sales in the seven trading days to Christmas rising 23.8% from the same period in 2010.Car and bike parts retailer Halfords and baby and toddler products group Mothercare nudged higher as well despite both firms seeing a decline in LFL sales.INVESTORS CELEBRATE AS RBS CUTS JOBS As expected, part-nationalised lender Royal Bank of Scotland (RBS) revealed a massive shake-up to its investment banking and wholesale businesses, including a mass employment reduction of 3,500. The group's Chief Executive Stephen Hester said: "Our goal from these changes is to be more focussed for customers, more conservatively funded, more efficient and with better, more stable returns for shareholders overall. Shares were trading 8% higher by midday but finished the day up 5.6%, with sector peers Lloyds and Barclays not too far behind. Banking titan HSBC didn't join in the party though after Bank of America Merrill Lynch downgraded the stock from neutral to underperform, citing high costs and its Chinese exposure as risks.BCFTSE 100 - RisersRoyal Bank of Scotland Group (RBS) 23.00p +5.55%Vedanta Resources (VED) 1,064.00p +4.72%Ashmore Group (ASHM) 340.80p +4.57%IMI (IMI) 859.00p +3.56%Schroders (SDR) 1,345.00p +3.54%Lloyds Banking Group (LLOY) 29.15p +3.48%Schroders (Non-Voting) (SDRC) 1,089.00p +3.22%Admiral Group (ADM) 871.50p +3.20%Cairn Energy (CNE) 288.60p +3.07%Aviva (AV.) 324.90p +3.04%FTSE 100 - FallersTesco (TSCO) 323.45p -15.99%Morrison (Wm) Supermarkets (MRW) 285.90p -5.95%Sainsbury (J) (SBRY) 285.90p -5.36%Polymetal International (POLY) 1,105.00p -4.25%Royal Dutch Shell 'A' (RDSA) 2,278.00p -2.13%Marks & Spencer Group (MKS) 315.60p -2.02%Royal Dutch Shell 'B' (RDSB) 2,365.00p -2.01%BAE Systems (BA.) 302.30p -1.85%Kingfisher (KGF) 251.10p -1.72%Weir Group (WEIR) 2,111.00p -1.63%FTSE 250 - RisersOcado Group (OCDO) 74.00p +33.45%SIG (SHI) 101.60p +10.92%Barratt Developments (BDEV) 107.20p +10.52%Cape (CIU) 388.30p +7.56%Computacenter (CCC) 359.60p +6.08%Regus (RGU) 89.00p +5.70%Invensys (ISYS) 227.10p +5.38%Provident Financial (PFG) 995.50p +4.84%Moneysupermarket.com Group (MONY) 114.50p +4.76%Renishaw (RSW) 1,116.00p +4.59%FTSE 250 - FallersHome Retail Group (HOME) 83.00p -4.87%Dairy Crest Group (DCG) 315.00p -4.20%Exillon Energy (EXI) 273.60p -4.00%Booker Group (BOK) 72.55p -3.14%Drax Group (DRX) 539.00p -2.80%Oxford Instruments (OXIG) 915.00p -2.66%Big Yellow Group (BYG) 270.00p -2.60%Afren (AFR) 105.60p -2.49%Kenmare Resources (KMR) 49.00p -2.49%Hays (HAS) 61.55p -2.38%