Sainsbury's showed further evidence it was suffering at the hands of price-cutting rivals as it warned that first-half profits would slump by nearly two-thirds.

Shares slipped to a 15-month low after the retailer gave its third warning on profits this year, although analysts said continued bid talk and the prospect of a trading review next week had prevented the stock falling further.

One analyst said the update reinforced his view that the UK's third supermarket was being "killed" by rivals Tesco and Asda, which have been steadily eating into its market share in recent years.

Next week, Sainsbury's chief executive, Justin King, will attempt to draw a line under the company's woes by outlining details of a strategic review.

Sainsbury's said it expected underlying profits for the six months to October 9 would be between £125m and £135m, down from £366m last year.

The market's already revised expectations, following a profits warning in July, had been for a range of £150m to £175m.

The figures emerged days after City watchdog the Financial Services Authority (FSA) said it was looking into how a Merrill Lynch analyst came to downgrade his forecasts in the wake of a conversation with the retailer.

A spokeswoman for Sainsbury's said the decision to issue yesterday's statement had been made independently of the FSA.

The company added the strategic review on October 19 meant it was unable to give guidance on its full year, although Seymour Pierce downgraded its estimates for the full year from £365m to £240m, compared with £616m last year.