Merck, the world's number three drug maker, has become the latest casualty of economic slowdown, admitting that slower sales means profits will miss earlier forecasts.

The warning to investors came one day after Europe's largest chemicals company, BASF, said it was shutting plants and slashing spending because of weaker economic conditions worldwide.

The announcements have spooked investors, who had hoped that drug and chemicals stocks would prove more resilient to stock market falls.

Merck shares fell more than 7% to $69 in morning trading in New York while BASF slipped 1% to 43.2 euros in Frankfurt trade, adding to Thursday's substantial losses.

Investors also continued to mark down shares in European chemicals firms Bayer and Akzo Nobel, suspecting they might soon issue profit warnings of their own.

Unwelcome dollar strength

Merck said it had been forced to revise estimates because of disappointing sales of Vioxx, its flagship arthritis drug, and the unwelcome strength of the dollar, which had reduced the value of products sold outside the United States.

It said it now expected second-quarter profits of 77-79 cents a share, compared with earlier market estimates of about 81 cents.

Chairman and chief executive Raymond Gilmartin sought to reassure investors, saying the company was cutting some costs but this would not jeopardise growth prospects or research and development.

"The momentum of our underlying business remains strong and we remain confident in our platform for future growth and innovation," he added.

Earlier this year, Merck reported a 11% rise in profits for the first quarter, in line with analyst expectations.

Sales were up 28% to $11.3bn.

But the results statement contained the germ of Friday's profit warning, with Mr Gilmartin saying that the first quarter performance was likely to be as good as it would get this year.