South African diamond producer De Beers has said the global economic downturn caused a sharp drop in sales last year.

De-stocking by retailers ahead of an anticipated decline in demand slashed sales of rough diamonds by 21.5% compared to the year before.

But demand for diamond jewellery fell by a more moderate 5%, buoyed by stronger than expected demand in the key US market over the Christmas period.

According to De Beers, the outlook for rough diamonds - stones that have not yet been cut and polished - is "more optimistic" at the beginning of 2002, with stocks at cutting centres dwindling.

However, the company warned that a return to normal sales growth depends on whether or not the global economy picks up this year.

De Beers sold $4.4bn (�3.1bn) worth of diamonds in 2001.

Regulatory issues

De Beers' future prospects also depend on whether a $4bn supply deal with Russian monopoly diamond producer Alrosa is cleared by European competition watchdogs.

The company said it has notified the European Commission of the Alrosa deal.

A second alliance with French luxury goods group LVMH, under which LVMH is to sell De Beers diamonds in selected retail outlets, was cleared by the European Commission last year.

De Beers said on Friday that profits for 2001 fell to $837m, down from $1.7bn the year before.

However, the company said that a year-on-year comparison between the two figures is distorted by an internal restructuring exercise last year.

De Beers, which controls an estimated two thirds of the world diamond market, is partly owned by South African mining company Anglo American.