The company said losses for the six months to late September came in at �6m, down from �10m during the same period last year.

The improvement reflected a drop in operating expenses and fewer one-off costs compared with the first half of 2002.

QXL added that while the number of sales completed on its sites had slipped during the summer months, trading had picked up more strongly than expected since late August.

"I am pleased with the steady progress we have made in what is traditionally our slowest quarter," said QXL chief executive Mark Zaleski.

"We expect to see further growth through the winter months."

Sales growth 'critical'

However, Mr Zaleski admitted that it was "critical" that the recent sales recovery continued, and said the company was investigating alternative financing arrangements as a precautionary measure.

The company, the product of a tie-up between UK online auctioneer QXL and its German rival Ricardo, has struggled in the face of stiff competition from its giant US competitor, Ebay.

California-based Ebay, which turned in record profits of $100m in the April to June quarter, earlier this year overtook online bookseller Amazon to become the UK's top internet retailer.

Ebay's growing popularity represents a formidable challenge to rival auction sites, as buyers and sellers are more likely to use the service that attracts the highest number of users - a phenomenon known as the "network effect."