Wednesday proved uncomfortable for Sir Peter as industry data revealed that J Sainsbury had lost its position as Britain’s second-largest food retailer to Wal-Mart’s Asda. At the same time, its proposed purchase of 171 stores from Somerfield was referred to the Competition Commission.

Yesterday proved to be just as bad, as David McCarthy, Citigroup’s highly respected retail analyst, published his gloomiest assessment yet of the retailer’s prospects.

Mr McCarthy’s perspective is based on his analysis of Sainsbury’s cost structure and buying power relative to Tesco, 1½p lighter at 215¼p. Sir Peter has made cost-cutting one of the key features of his three-year turnaround strategy, but Mr McCarthy calculates that Sainsbury’s cost disadvantage next to Tesco is almost 6 per cent, or greater than its entire operating profit. Citigroup also estimates that Sainsbury’s buying disadvantage to Tesco will worsen by a significant 0.3 per cent a year as Tesco continues to increase turnover by £1 billion a year.

Just as bearishly, Mr McCarthy believes Sainsbury’s still-unknown incoming chief executive, who will replace Sir Peter when he takes up the chairman’s role next year, is likely to cut the dividend. With Citigroup suggesting that a bid approach is unlikely and setting a 225p price target, the shares fell 3¾p to 264¾p.

Helped by strong US GDP data and a rally in life insurers, the FTSE 100 rose 15.8 points to 4,157.0. But it was ICI that proved the talking point after better than expected interims produced a bear squeeze, lifting the chemicals group 31p to 171¼p, or 22 per cent. With marketmakers and hedge funds short of the stock, and UK fund managers underweight, the resulting scramble forced the stock steadily higher throughout the day.

Shire Pharmaceuticals rose 13¼p to 477¼p in response to strong first-half numbers and plans to spin off its loss-making vaccines business as part of a strategic review. It also said it was looking for an acquisition in the US to cut its exposure to Adderall, its best-selling hyperactivity treatment. HSBC repeated yesterday its “buy” recommendation, suggesting that the shares could close their current steep discount to their sector if the strategy pays off.

GlaxoSmithKline fell 9p to £11.92 as investors pondered the announcement that the US Food and Drug Administration had approved the application of Canada’s Apotex to make a generic version of Paxil, its best-selling anti-depressant. But litigation between the two firms means a product launch is not likely until 2005.

• NEW YORK: Stocks rose after a report showing that America’s GDP grew faster than expected helped to boost hopes that the US economy is picking up. The Dow Jones industrial average closed up 33.75 at 9,233.80.

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