M&S cuts cloth to cope with consumer downturn

By James Davey and Mark Potter

LONDON (Reuters) - Retailer Marks & Spencer (MKS.L) is reining in investment, slashing costs and stepping up promotions amid signs of worsening consumer sentiment as house prices fall at the fastest rate for 17 years.

The clothing, food and homewares group posted a 6.1 percent drop in second-quarter core sales on Thursday and warned shoppers were "increasingly cautious about their budgets.

But shares in the 114-year-old group, which have plunged over two thirds in value over the past 18 months, jumped as much as 8.7 percent amid hopes the steps being taken will mean profit forecasts will not have to fall much further.

"With the worst Christmas for at least 30 years coming up for non-food retailers we wouldn't get carried away," said Pali International analyst Nick Bubb.

"But the shares have fallen far enough in the short term and M&S is off the hook for the time being."

Shoppers are struggling with higher food and fuel costs, plunging house prices and growing economic uncertainty.

The Nationwide building society said house prices fell 1.7 percent in September on the month before and were down 12.4 percent on the same time last year, the biggest annual fall since comparable records began in 1991.

"A TIME FOR STEADY HANDS"