By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- Clothing retailer Next PLC suffered its worst drop in two years Tuesday following a profit warning.

Next shares fell 3.8%, the sharpest decline since April 2012, according to FactSet data. In its profit warning, the retailer noted third-quarter sales to date have risen 6%. It previously expected a gain of 10%, and it attributed the shortfall to unusually warm weather in September. If that weather runs through October, Next said it's likely to cut its full-year earnings forecast.

Temperatures across the U.K. are expected to run above average in October, as well as into December, according to a three-month outlook from the Met Office, Britain's national weather service.

Meanwhile, RBS shares tacked on 1.9%, as the bank said it expects losses from bad loans in 2014 are likely to be "significantly lower" than the GBP1 billion ($1.6 billion) that it had anticipated.

Shares of Associated British Foods PLC jumped 4.5% as Primark's parent company was upgraded to outperform from neutral at Credit Suisse. (Read more about European stock movers http://www.marketwatch.com/story/next-falls-primarks-parent-climbs-european-stock-moves-2014-09-30.).

The broader London index rang up a loss for the quarter. The FTSE 100 shed 0.4% to 6,622.72. It closed the third quarter with a 1.8% loss and a 2.9% decline for September.

As the rest of Europe received mixed economic data Tuesday. The U.K.'s Office for National Statistics said the British economy expanded 0.9% in the second quarter. That compares with the previous growth estimate of 0.8% on a quarter-on-quarter basis.

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