DIAGEO has warned of flat first half sales in the US, its biggest market, after its brands under-performed over the key Thanksgiving period.

Shares in the world's biggest spirits company closed down by nearly two per cent after North American boss Larry Schwartz told investors sales were "not as strong as we hoped" for over the holiday. The stock had dropped nearly four per cent earlier in the session.

Mr Schwartz also warned margin improvement would fail to match the levels achieved in the last two years.

Diageo's weaker performance in the US was partly put down to major discounting on Smirnoff vodka - a strategy designed to stop drinkers switching to other brands.

But more broadly Mr Schwartz said growth across the whole spirits category had slowed in light of the uneven economic recovery.