Safeway has been at the centre of a long-running takeover tussle

Supermarket group and takeover target Safeway has warned that its half-year earnings are set to slip.

Safeway said underlying pre-tax profits would be around �173m for the first-half, down from �187m a year earlier.

The news came as the grocer reported a modest rise in second quarter underlying sales, boosted by a cut back on costly price reductions.

Safeway said like-for-like sales were up 0.7% in the 16 weeks to October 11, from a 0.6% drop in the first quarter.

Chief executive Carlos Criado-Perez Supermarket hailed a "stable" performance in the face of uncertainty over its future, as the 10-month takeover saga nears its climax.

'Stable trading'

He said: "Our people have risen brilliantly to the challenge of serving our 10 million customers in very testing circumstances.

"Safeway has delivered stable trading, solid results and strong cash generation."

In September the chain saw bids from Tesco, Asda and Sainsbury's blocked after a lengthy competition probe.

A Government ruling blocked approaches from the "big three", and left the way clear for Bradford-based Wm Morrison and retail entrepreneur Philip Green to submit bids for the chain.

However, Trade & Industry Secretary Patricia Hewitt said Morrison would have to sell off 53 of Safeway's 479-strong chain of supermarkets if its takeover attempt was successful.