Britain's Asda steps up price war with more cuts

LONDON (Reuters) - British supermarket Asda is lowering prices on a further 1,500 products, it said on Friday, stepping up a price war that has seen shares in rivals slide over the last week.

Asda, Britain's third largest grocer, warned last week it would take a hit to profits as it made a "substantive" investment in regaining lost market share.

The plan includes improving product availability and stores, as well as price cuts, and sent shares in industry leader Tesco and number two Sainsbury's down 9% and 8% respectively.

Asda said on Friday the latest wave of cuts meant nearly 10,000 products, or almost a third of its range, had been reduced in price since January.

Examples include a 165g pack of Philadelphia soft cheese reduced by 44% to 1.16 pounds ($1.50) and a 330ml bottle of Head and Shoulders 2 in 1 shampoo and conditioner cut by 34% to 3.32 pounds.

"We will continue to invest in lowering prices across the rest of the year and beyond," Asda's executive chairman Alan Leighton said.

While analysts see Asda's move as a potential headwind for rivals, some question whether it has the financial firepower for a sustained price war, given that its majority owner, private equity group TDR Capital, is not putting additional equity into the business.

They also highlight that Tesco and Sainsbury's have stronger balance sheets than Asda.

"Our central scenario is that, in order to protect share, Tesco and Sainsbury's will price match," said analysts at HSBC, adding that the downside risk to their earnings might not be that serious.

($1 = 0.7730 pounds)

(Reporting by James Davey; Editing by Mark Potter)