Tobacco stocks weigh on UK's FTSE after RJR fine

Britain's top equity index fell on Monday as tobacco stocks were hit by a multi-billion-dollar fine against U.S. rival RJ Reynolds. 

The blue-chip FTSE 100 index was down 0.3% -or 18.27 points - at 6,731.18 points in early trading.

The decline was tempered by a rally in supermarket group Tesco on news of a leadership change.

A 0.8% fall at British American Tobacco and a 1% drop at Imperial Tobacco together took the most points off the FTSE 100, after a Florida jury imposed punitive damages of $23.6 billion against RJ Reynolds Tobacco Company.

Central Markets trading analyst Joe Neighbour said that even though it was unlikely the fine would be paid out in full, it was nevertheless damaging for the sector.

"It's bad for sentiment. It's a landmark case and it could open up the way for further lawsuits down the line," he said.

Tesco rose 2.3% as investors expressed relief that its chief executive Philip Clarke would be stepping down, news that outweighed the impact of a profit warning..

"There's some relief that Clarke is leaving, allowing the company to have a fresh start," said Spreadex sales trader Lee Mumford.

Tesco's warning hit the shares of rival supermarkets including WM Morrison and Sainsbury. Hantec Markets analyst Richard Perry said concerns about Ukraine would continue to peg back the FTSE and other equity markets.

West governments blamed pro-Russian forces for shooting down a Malaysian passenger plane over eastern Ukraine last week and may step up sanctions against Russia in response.

"The Ukraine situation has the potential to get ever worse," said Perry.

(Reporting by Sudip Kar-Gupta, editing by John Stonestreet)