TESCO dragged London’s leading shares index down today after its shares fell 16% following a grim Christmas update and profits warning.

The UK’s biggest supermarket admitted that profits growth would be at the low end of expectations this year following a 2.3% drop in like-for-like sales in the six weeks to January 7.

Its shares fell 61.6p to 323.5p - to a near-three year low.

With nearly £5 billion wiped off Tesco’s share price and several other retailers also in the red, the FTSE 100 Index lost earlier gains to fall 8.4 points to 5662.4.

London’s blue chip shares index failed to make progress despite a strong performance by miners and encouraging bond auctions in Italy and Spain, which eased fears over the eurozone debt crisis.

Both debt-laden countries paid far less to borrow than in previous sales in a sign that confidence in the nations’ finances could be improving.

The pound was down against the euro at 1.20 after the single currency was boosted by the bond auctions. But sterling was up against the dollar at 1.53.

Tesco’s admission that its Big Price Drop campaign had failed to pull in enough customers over a “disappointing” festive period had a negative impact on its supermarket peers.

Even though Sainsbury’s and Morrisons have already posted resilient updates shares in the pair were down by 16.2p at 285.9p and 18.1p at 285.9p respectively.

Home Retail Group saw its shares fall 5% or 4.3p at 83p, making it the biggest faller in the FTSE 250 Index, after it warned it was set to slash its dividend after a poor festive season at its catalogue chain Argos.