TESCO shares soared to one-year highs on Wednesday, but the London stock market remained under pressure amid reports that the European Central Bank (ECB) could pare back its easing programme.
The FTSE 100 closed 41.1 points lower at 7033.25, after nearing a record high a day earlier.
Tesco shares failed to prop up the market, despite jumping more than nine per cent or 18.4p to close at the highest level in more than a year at 207.1p.
The supermarket reported a 0.9 per cent surge in UK like-for-like sales in the second quarter and unveiled a three-year plan to get profits back on track.
On the currency markets, sterling started to stabilise after momentarily falling below 1.27 against the US dollar to a fresh 31-year low at 1.268.
It comes after the Markit/CIPS services purchasing managers' index (PMI) showed a higher-than-expected reading of 52.6 in September, providing further evidence that the sector was recovering from a shock contraction after the Brexit vote.
The pound was up 0.23 per cent against the greenback at 1.275 in afternoon trade. Against the euro, £1 was worth 1.138 euros, skimming a five-year low.
Across Europe, the French Cac 40 and German Dax closed lower by 0.29 and 0.32 respectively.
Global stocks were hit by investor jitters over reports suggesting the ECB might taper its €80 billion (£70.5 billion) per month bond-buying programme incrementally by €10bn (£8.8bn) per month.
"The fact that the market reacted so violently is further evidence that investors are beginning to doubt whether central bankers still believe their own spiel about the merit of extraordinary monetary policies," said Jane Foley, a senior FX strategist at Rabobank.
In oil markets, Brent crude held above $50 at $51.87 per barrel, after the American Petroleum Institute reported that US crude inventories fell for a fifth consecutive week on Tuesday.
In UK stocks, Aviva shares rose 5.8p to 453.4p despite being slapped with an £8.2m fine by the Financial Conduct Authority (FCA) linked to the protection of client assets.
Away from the top-tier index, Topps Tiles shares dropped 8.7 per cent after it warned of a drop in consumer confidence as it reported a slowdown in like-for-like sales in the fourth quarter - rising 1.4 per cent compared with 6.2 per cent in the previous quarter.
Topps still expects to post record annual sales this year, with revenues forecast to hit £215m, up from £212.2m in 2015.
The biggest risers on the FTSE 100 were Tesco up 18.4p to 207.1p, Marks and Spencer Group up 8.8p at 337.7p, Anglo American up 24.7p at 1011p, and Barclays up 3.2p at 172.45p.
The biggest fallers on the FTSE 100 were Polymetal International down 53p to 875p, United Utilities Group down 43.5p at 951p, Randgold Resources down 290p at 7040p, and Intu Properties down 10.8p at 290p.
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