STOCKS NEWS EUROPE-Tesco rallies on better than feared results

Shares in Tesco (Xetra: TCO.DE - news) , the world's No.3 retailer, rebound after recent steep declines on results which traders say are better than feared.

A 1.7 percent rise from Tesco gives one of the biggest lifts to Britain's FTSE 100 index in brisk trade at three quarters of the 90-day daily average against the UK benchmark which is on just a quarter of those average daily volumes.

Tesco posts trading profit for the year to Feb. 22 of 3.3 billion pounds ($5.5 billion), in line with forecasts but down on a restated figure of 3.52 billion for 2012-13.

Joe Rundle, head of trading at ETX Capital, said the market had been pricing in "bad, bad news" for Tesco, so the fact the results had come in-line with forecasts was a relief for investors.

"I think they're probably finding a bottom around here and I would do a trade of buying Tesco, selling Sainsbury (Berlin: SUY1.BE - news) 's," added Rundle.

In common with Britain's three other leading grocers - Wal-Mart's Asda, Sainsbury's and Morrisons - Tesco has been squeezed between discounters Aldi and Lidl and by Waitrose and Marks & Spencer (Other OTC: MAKSF - news) at the premium end.

Tesco has dropped some 14 percent this year, underperforming a fall of around 3 percent on the FTSE 100.

That leaves it on a 12-month forward price/earnings ratio of 10.1 times, against its 10-year average of 12.9 times, Thomson Reuters Datastream shows. The UK benchmark trades on 13.2 times.

"We are positive on management and their ability to gain back market share. If operating margin and cost control measures can be stabilised then we remain positive on the outlook given the current valuation," Atif Latif, director of trading at Guardian Stockbrokers, says.

($1 = 0.5977 British Pounds)

Reuters messaging rm://tricia.wright1.thomsonreuters.com@reuters.net