IP: US problems are bigger than analysts had thought

The electricity generator said low prices and overcapacity meant 2004 would be a "difficult" year for its US business.

The company also reported a 14% drop in pre-tax profits to �71m for the July to September period.

International Power shares closed down 12.5 pence at 116p on the London market.

Under pressure

Shares had fallen by as much as 20% in early trade as investors were alarmed by the extent of the company's problems.

"The pricing environment in the US remains weak and in the absence of significant improvement in our US markets we expect 2004 to be a difficult year," said International Power's chairman Sir Neville Simms.

The company said that profits at its plants in Texas and New England were likely to come under "severe pressure" in the coming year.

There was better news from the UK, with the firm saying that higher electricity prices should lead to increased UK earnings next year.

But investors focused on the bad news from the US.

"It's a pretty big blow," said Henk Potts of Barclays Stockbrokers.

"International Power has had problems in the US before. In its interim results it warned about the US markets but people did not realise just how big its problems were there."