The British-based group said the US economic slowdown had contributed to a drop in business at its Holiday Inn and Inter-Continental chains in early 2001.

We are certainly cautious and prudent in the short term, but more optimistic for the mid-term

Tim Clarke Bass chief executive

Despite this, it said it was pushing ahead with ambitious expansion plans and would look to buy properties in areas where the downturn has affected prices.

The worries about the US slowdown sent its share price tumbling in early trading. But by 1415 GMT, the stock had recovered, up almost 1% at 790p.

Last year Bass sold its brewing interests to Belgium's Interbrew in a �2.3bn deal.

On Wednesday, the UK's High Court backed Belgian brewer's appeal against a government ruling that it must sell the Bass business, which includes the Carling and Tennents lager brands, because of competition concerns.

The case will not affect Bass whose sale agreement with Interbrew did not depend on regulatory clearance.

Cautious

Bass said its Holiday Inns showed revenue per available room growth of 3.6% in the first quarter of October-December.

But this slowed to 2.3% growth in the second quarter of January to March 2001.

Its pubs and restaurants in Britain also showed a underlying slowdown in second-quarter sales.

Pre-tax profits before exceptionals rose to �337m for the 28 weeks to 14 April, towards the top end of analysts' forecast of �319-338m.

Bass chief executive Tim Clarke said the US economy was difficult to read, but added that North America now only accounts for 47% of group's hotel profits.

"We are certainly cautious and prudent in the short term, but more optimistic for the mid-term," Mr Clarke said.

'Good numbers'

Commenting on the results, Fraser Ramzan, an analyst at Lehman Brothers, said: "It was a case of good numbers but a poor outlook, with strong signs of a US slowdown in the group's second quarter."

Bass's overall hotel division increased profit by 26.7%, with continental Europe strong and the UK mixed. Bass' London luxury hotels are suffering from lower occupancies.

Mr Clarke argued that the group's strong geographic spread with its European hotels and British pubs would help the group weather any US economic storm.

But its 2,000-plus UK pubs showed like-for-like sales down 1.6% for the half year, a worsening position after first-quarter comparable sales dipped 1.1%.

Mr Clarke blamed poor weather in January and February and a decision to cut back on price discounting at its high-street bars.

Increased dividend

On expansion, Bass said it wanted to increase its Inter-Continental sites in the US, its mid-market Holiday Inns in western Europe and expand in key "Gateway" cities such as London, New York, Paris, Tokyo and Hong Kong.

The company has spent �1.2bn on acquisitions and organic expansion this financial year.

Earlier this month, it paid �241m pounds for the 514-room Regent Hong Kong Hotel to convert it to its second Inter-Continental in Hong Kong.

And in early April, it bought the 79-strong UK mid-market Posthouse hotel chain for �810m, for conversion to Holiday Inns.

Mr Clarke declined to comment on talk it may bid up to $4bn for Dallas-based Wyndham International.

The group increased its half-year dividend payout to shareholders by 3% to 10.4p a share.