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Tesco Meets Forecast as Third-Quarter Sales Rise 4.1%

Tesco, Britain's biggest retailer, met forecasts with a 4.1 percent rise in underlying third-quarter UK sales on Tuesday and said its new U.S. stores had been "very well received" by customers.

Finance Director Andrew Higginson told Reuters that British shoppers were becoming more cautious following a string of interest rate rises and higher fuel costs, and called on the Bank of England to cut rates "sooner rather than later."

But he added that Tesco was doing well in the tougher trading environment thanks to its focus on low prices, and the supermarket group was taking market share in a range of non-food items such as televisions, health and beauty products.

"When you do see markets slow a little bit, you tend to see a bit of a gap between winners and losers," he said in a telephone interview, adding he was "quite pleased with the way Christmas is shaping up at the moment."

Tesco, which runs over 3,200 stores across the world and opened its first shop in the United States last month, said sales, excluding fuel, at UK stores open at least a year, rose 4.1 percent in the 13 weeks to Nov. 24.

This was up from 2.4 percent in the second quarter and compared with analysts' forecasts of 3.5 percent to 4.5 percent, according to a Reuters poll of five brokerages.

Total sales were up 11.8 percent, including a 25.7 percent rise in international sales.

"Today's results are testimony of Tesco's resilient business model: there are not many companies delivering these like-for-like sales in the current UK retail environment," Numis Securities analysts wrote in a research note.

Spread-betters Cantor Index said Tesco shares were set to open at 490-491 pence, versus Monday's close of 487.75 pence.

Fresh & Easy

Higginson was confident about the group's new Fresh & Easy U.S. stores, but added it was too early to tell whether shoppers would embrace the new convenience store format, with a focus on fresh foods, own-label products and self-service checkouts.

Tesco is the world's third-biggest retailer behind U.S. group Wal-Mart and France's Carrefour. But it makes about 80 percent of sales and profits from its 2,000 stores in Britain, where it takes about one in every eight pounds spent by shoppers and one in three spent in supermarkets.

Britain's retailers are generally struggling as indebted shoppers cut back on spending following a string of interest rate increases. Electrical goods retailer DSG warned last week that consumer confidence across Europe was fragile.

From its roots in groceries, Tesco has branched out to sell everything from clothes and DVDs to insurance and mobile phones.

It now employs more than 450,000 people across the world and is in the midst of a hotly anticipated rollout of Fresh & Easy convenience stories on the West Coast of the United States.

Tesco shares have outperformed the DJ Stoxx European retail index by 9 percent this year.