Carrefour shares drop on French suit over trade practices

* Carrefour (LSE: 0NPH.L - news) shares among worst performers on Paris market

* Protests in France this year over retailers' pricing

By Dominique Vidalon

PARIS, Nov 10 (Reuters) - Carrefour shares fell sharply on Thursday after the French government said it was suing Europe's largest retailer for unfairly squeezing its suppliers to lower prices, following an investigation.

Carrefour, which is the world's second-biggest retailer, said it had no comment.

Carrefour shares were down around 3.5 percent in early trading, one of the weakest performers on France's benchmark CAC-40 index.

"Clearly this is not good news for Carrefour and other French retailers. Whether it is successful or not as a legal case, it will have an impact as it will put pressure on how Carrefour (Swiss: CA.SW - news) behaves with its suppliers," said Bernstein analyst Bruno Monteyne.

The stock is down by around 15 percent so far in 2016, underperforming a broadly flat performance on the CAC this year.

"Clearly this is not good news for Carrefour and other French retailers. Whether it is successful or not as a legal case, it will have an impact as it will put pressure on how Carrefour behaves with its suppliers," said Bernstein analyst Bruno Monteyne.

Milk and meat producers in France held several demonstrations earlier this year saying they were effectively being forced to operate at a loss because of overcapacity and aggressive pricing pressure from retailers.

The Socialist government, facing a presidential election next year, has warned retailers not to push prices down during annual price negotiations for 2017 that are currently starting with their suppliers.

The French Economy Ministry said on Wednesday it would seek a fine and a court order on Carrefour, to stop what it described as "abusive commercial practices".

It added the investigation had found that Carrefour had forced suppliers to give significant discounts with nothing in return as a "pre-condition" to entering annual price negotiations, which it said was not only against the law but hurt companies and farms.

As the annual price negotiations for 2017 have started, the French government warned other retailers in its statement that other court orders could be filed in the coming weeks "to put an end to and punish the practices of several other retailers".

The charges follow a search of Carrefour's headquarters in February 2016 as part of an investigation by the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF).

Three former senior executives of Britain's Tesco (Frankfurt: 852647 - news) , accused of fraud and false accounting, will face trial next September due to an overstatement of profits, mainly due to booking commercial deals with suppliers too early.

That case contributed to one of the biggest annual financial losses in British corporate history, led to the departure of several top executives and prompted litigation in the United States and Britain. (Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta/Ruth Pitchford)