February 1 (REUTERS) - Arsenal's title hopes suffered a grievous blow with a shock 2-1 defeat at home to struggling Watford on Tuesday in their first Premier League loss at the Emirates Stadium since the opening weekend of the season. Manager Arsene Wenger, serving the second of a four-match touchline ban after his recent sending off, watched gloomily from the stands as Watford struck twice through a Younes Kaboul deflected free kick and a Troy Deeney tap-in after 13 minutes. Having seen his side dominated in the first half, Wenger rang the changes after the break, introducing Theo Walcott to the fray, and a livelier Arsenal emerged with Alex Iwobi narrowing the deficit just before the hour mark. Yet despite Arsenal then carving out the best chances, with Lucas Perez smashing one against the bar, they could not stop Walter Mazzarri's side, who had gone seven games without a league win, holding on for a crucial victory.