Tesco gets analyst thumbs down, weighs on FTSE

* FTSE 100 index ends down 0.5 percent

* Tesco (Xetra: TCO.DE - news) hit by multiple target cuts a day after update

* ITV (LSE: ITV.L - news) special dividend not enough to halt profit-takers

By Simon Jessop

LONDON, Feb 26 (Reuters) - Analyst cuts prompted a rush to the exits for investors in retailer Tesco, weighing on the blue-chip FTSE 100 on Wednesday and dragging it further away from a recent multi-year high.

Nomura, Oriel, Cantor and Jefferies were among those that cut ratings or price targets on Tesco, the world's third-largest retailer, a day after it flagged price cuts and scaled back its operating margin goal.

That would have pleased the many investors who had borrowed the stock and sold it on, betting on a share price fall, heading into the numbers. Over the last week the number of shares on loan had jumped by a quarter.

"It's a reasonable size number and shows people were anticipating some bad news," said David Lewis at Astec Analytics, which tracks stock-lending data, adding that the current 133 million shares out on loan was near a record high.

Demand to sell out of the stock was strong - at twice its three-month daily average - although by the close it had pulled off its lows to trade down 2.8 percent, its biggest daily fall since September 2013.

"You have to ask why investors need to be in this stock at the moment. I would advise caution on the stock," said Graham Jones, analyst at Panmure Gordon. "At least in the next six months, I don't see what's going to change at Tesco to make investors' sentiment more positive."

The scale of the weakness in Tesco weighed on the broader European retail sector and caused the STOXX Europe 600 Retail index to end down 0.8 percent and lag most sectoral peers.

Tesco's heavy weighting within the FTSE meant it acted as a drag on the parent index and left it down 0.5 percent, or 31.3 points, at 6,799.15, even though fund flows into Europe remain positive and many expect the fresh 14-year closing high hit on Monday to be extended in the coming weeks.

"Investors have become cautious as they think the market is due for a correction after rising too far, too fast. They are waiting for some catalysts before pushing the FTSE 100 towards record highs," said Tom Robertson, senior trader at Accendo Markets.

"If we test 6,850, then we could be set for higher highs and the next target would be the all-time high of 6,950.60. But if we fail to break through the 6,850 level in the near term, the market would become vulnerable to more profit taking."

Also feeling investors' ire, in spite of plans to issue a special dividend, was broadcaster ITV, down 2.2 percent in volume nearly four times its three-month average that made it the most traded blue chip.

"(The) results are all good but the extra investment in programming that they have announced today means no upgrades which is likely to take the gloss off their performance," an equity sales trader at a UK brokerage firm said.